Revaluation reserve is an accounting term used when a company creates a line item on its balance sheet for the purpose of maintaining a reserve account tied to certain assets. This line item can be used when a revaluation assessment finds that the carrying value of the asset has changed.

What is a revaluation surplus?

A revaluation surplus is an equity account in which is stored any upward changes in the value of capital assets. If a revalued asset is subsequently dispositioned out of a business, any remaining revaluation surplus is credited to the retained earnings account of the entity.

What is the opposite of revaluation surplus?

Reversal of revaluation If a revalued asset is subsequently valued down due to impairment, the loss is first written off against any balance available in the revaluation surplus and if the loss exceeds the revaluation surplus balance of the same asset the difference is charged to income statement as impairment loss.

Where do you put revaluation surplus?

An increase in the asset’s value should not be reported on the income statement; instead an equity account is credited called “Revaluation Surplus. ” Revaluation surplus is reported in the other comprehensive income sub-section of the owner’s equity section in the balance sheet.

How do you deal with revaluation surplus?

A revaluation loss should be charged against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of the same asset. Any additional loss must be charged as an expense in the statement of profit or loss.

How do you find revaluation surplus?

Under revaluation model, management can revalue its assets to their current market value. If there is an increase in value of asset, the difference between asset’s market value and current book value is recorded as revaluation surplus. Example: A company purchased an asset two year ago at the cost of $ 100,000.

What is the purpose of revaluation?

The purpose of a revaluation is to bring into the books the fair market value of fixed assets. This may be helpful in order to decide whether to invest in another business. If a company wants to sell one of its assets, it is revalued in preparation for sales negotiations.

Why does revaluation happen?

Currency revaluation can be triggered by a variety of events. Some of the more common causes include changes in the interest rates between various countries and large-scale events that affect the overall profitability, or competitiveness, of an economy. Speculative demand can also affect the value of a currency.

Can revaluation reserve be transferred to general reserve?

The ‘Revaluation Reserve’ is treated as a Capital Reserve as it cannot be distributed as dividends. However, if the asset has been sold at a profit, such profit is credited to Profit and Loss Account and the revaluation reserve balance is transferred to General Reserve Account.