Can anyone help me with understanding the example given in pg 63 of Clare’s book - Student’s Guide to International Financial Reporting Standards?

Following the entries made to the Revaluation Reserve account, I arrive at this:

Revaluation Reserve
——————————
Dr       Cr
1,000     8,000

When the asset is sold, to transfer the remaining balance on this account, shouldn’t we Dr 7,000 on the account?? and Cr Retaining earnings?

The answer in the book is Dr Retaining earnings, Cr Revaluation reserve. Why?

Hi Kaitlyn,

At the date we dispose of the revalued asset ..you are correct we have $7,000 on the revaluation reserve (page 64 second e

edition).

We do need to clear down the revaluation reserve to zero which as you say is Dr revaluation reserve ( the book doesn’t say Cr Revaluation reserve??)

This is then transferred to the retained earnings account ie Cr Retained earnings..

So we are in complete agreement here…

Hope that helps

Clare

Hi Clare

Thanks for the reply,

What I mean is the answer in the book is Dr Retained Earnings, Cr Revaluation Reserve.

According to your answer, does that mean it should be Dr Revaluation Reserve, Cr Retained Earnings?

Thanks
Kaitlyn

Hi Kaitlyn,

Where does it say Dr Retained earnings Cr Revaluaion resetve please?

Sorry if I’m being dense!

Thanks

Clare

Hi Kaitlyn/Clare

I’m wondering if it’s the brackets on the page that might be causing the confusion.

Kaitlyn, in the book Clare is (reducing) the balance on the revaluation reserve i.e. taking the $7,000 off the revaluation surplus - which is a credit balance in the equity section of the position statement - and increasing the balance on the retained earnings, i.e. without the brackets to show the effect in the statement of financial position, so if you think of it like:

Revaluation surplus (say) $14,000CR (before revaluation adjustment)
Clare’s journal….......($7,000)
Revised balance…........$7,000 (after revaluation adjustment)

Retained earnings (say)...$10,000CR (before revaluation adj)
Clare’s journal…........$7,000
Revised balance…........$17,000 (after revaluation adj)

Because both the revaluation reserve and the retained earnings are credit balances (usually with retained earnings, anyway) Clare is (deducting) the balance off revaluation and increasing the balance on retained earnings. 

Just a thought…....

Best wishes
Steve