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PART D: RECORDING TRANSACTIONS AND EVENTS 

 

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The effect of these entries is as follows. 

 

BUILDING – COST OR VALUATION 

 

 

 

$    

 

 

$         

 

Balance b/d 

 

30,000 

 

Balance c/d 

 

75,000 

 

Revaluation surplus 

 

45,000   

 

            

 

 

75,000   

 

75,000 

 

BUILDING – ACCUMULATED DEPRECIATION 

 

 

 

$ 

 

 

 

 

$         

 

Revaluation surplus 

 

5,000 

 

Balance b/d 

 

5,000 

 

Balance c/d 

 

       –   

 

          

 

   

5,000   

 

5,000 

 LAND 

– 

COST 

 

 

 

$   

 

 

$         

 

Balance b/d 

 

20,000 

 

Balance c/d 

 

75,000 

 

Revaluation surplus 

 

55,000   

 

             

 

 

75,000   

 

75,000 

 REVALUATION 

SURPLUS 

 

 

 

$   

 

 

$        

 

Balance c/d 

 

105,000

 

Building – cost 

 

45,000 

 

 

 

Building – acc depreciation 

 

5,000 

 

 

             

 

Land – cost 

 

  55,000 

 

 

105,000  

 

105,000 

5.3 Excess depreciation 

As we saw above, the consequence of the revaluation is a higher annual depreciation charge. The 

difference between the new depreciation charge based on the revalued carrying amount and the old 

depreciation charge based on the original cost of the asset is known as the 'excess depreciation'. IAS 16 

allows entities to transfer an amount equal to the excess depreciation from the revaluation surplus to 

retained earnings in the equity section of the statement of financial position, if they wish to do so. 

 

(IAS 16, para. 41) 

Applying this to the example above gives the following. 

Old depreciation = 

$30,000

30 years

 = $1,000 per year 

New depreciation = 

$75,000

25 years

 = $3,000 per year 

Excess depreciation = $3,000 – $1,000 = $2,000 

An amount of $2,000, representing the excess depreciation, can be transferred each year from the 

revaluation surplus to retained earnings.  

The accounting entries to record the depreciation charge each year would therefore be as follows.  

DEBIT 

Depreciation expense (statement of profit or loss) 

$3,000 

 

CREDIT 

Accumulated depreciation account (statement of  

   financial position) 

 

$3,000 

 

To record the new annual depreciation charge 

 

 

 

 

 

 

DEBIT 

Revaluation surplus (statement of financial  

   position) 

$2,000 

 

CREDIT 

Retained earnings (statement of financial    

   position) 

 $2,000 

 

To record the transfer of the excess depreciation 

 

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CHAPTER 8  

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  TANGIBLE NON-CURRENT ASSETS 

 

153 

This transfer between the revaluation surplus to retained earnings is shown in the financial statements in 

the statement of changes in equity. The statement of changes in equity is covered in Chapter 20 where 

we take a look at financial statements for companies.  

 

 

5.4 Revaluation downwards 

After some years, it may become apparent that the building is overvalued and needs to be revalued 

downwards. 

Carrying on the example from above, the carrying amount of the building five years after the revaluation 

to $75,000 is $75,000 – ($3,000  5) = $60,000. However, the market value of building has fallen 

to $40,000. (In order to make the double entry clear in this example, we will assume that the entity 

does not transfer the excess depreciation from the revaluation surplus to retained earnings.) 

The accounting treatment for the downward revaluation is: 

DEBIT 

Revaluation surplus   

$20,000 

 

Buildings   – accumulated depreciation 

$15,000 

CREDIT 

Buildings  – cost ($75,000 – $40,000) 

 

$35,000

Note that these entries are required because there is already a revaluation surplus for the building, 

which should be reduced by the downward valuation until there is no surplus left, at which point, any 

further downward revaluation is recognised as an expense (IAS 16, para. 40).

 

The effect of these entries is as follows. 

 

BUILDING – COST OR VALUATION 

 $ 

 

 

    

 

$      

Balance b/d 

75,000 

Revaluation surplus 

35,000 

 

             

Balance c/d 

 40,000 

 

 75,000 

 

 75,000 

 

BUILDING – ACCUMULATED DEPRECIATION 

 

$    

 

  

 

$      

Revaluation surplus 

 15,000 

Balance b/d (5  $3,000) 

 15,000 

 

LAND – COST OR VALUATION 

 $ 

 

 

    

 

$ 

 

     

Balance b/d 

 75,000 

Balance c/d 

 75,000 

 REVALUATION 

SURPLUS 

 

$     

 

$     

Cost 35,000 

Balance 

b/d 

105,000 

Balance c/d 

   85,000 

Accumulated depreciation 

   15,000 

 

 120,000 

    

 120,000 

 EXAM FOCUS POINT 

In the July to December 2016 exam report, ACCA’s examining team identified a question about the 

transfer of the excess depreciation from the revaluation surplus to retained earnings as one which 

caused difficulties for candidates. It is expected that future candidates understand how to account for 

the excess depreciation transfer in accordance with IAS 16. 

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