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Revaluation Method of Depreciation

As per this method of depreciation, we revaluate the fixed asset at the time of closing of accounts in every year. Difference between opening balance of fixed asset and current value of asset at the end of year will be the depreciation. If there is excess of current value of asset over the opening balance of asset, then this will be the increment in the asset. We transfer the calculated amount to profit and loss account.

This is very simple method. It method can easily apply on live stock and loose stock, corks, packages, patterns, trade marks, cutlery and crockery because we need to calculate the current value of these assets for calculating the depreciation. If our live stock dies and its opening balance  is $ 50,000 but due to death of live stock, current market value of dead live stock is $ 0. So, depreciation of live stock will be $ 50,000.

We can understand this method with following example. 

A firm had purchased loose tools costing $ 62500 on 1st april 2000. The tools were independent valued at the end of every year and the values placed on them were as under :

31st Dec. 2000 $ 60,000
31st Dec. 2001 $ 50,000
31st Dec. 2002 $ 42,500
31st Dec. 2003 $ 32,500

Find out the Amount of Depreciation for each year. 



Annual Depreciation Formula Value at the Beginning - Estimated Value at the End
Year Value at the Beginning Estimated Value at the End Annual Depreciation
2000 62500 60000 2500
2001 60000 50000 10000
2002 50000 42500 7500
2003 42500 32500 10000

Revaluation Model of Depreciation 

On the basis of Revaluation method of depreciation, revaluation model of depreciation has been created. There is some difference in it also. As per IFRS Latest Rules 

Both IAS 16 (paragraphs 30/31) and IAS 38 (paragraphs 74/75) provide two options for measurement after recognition: the cost model and the revaluation model. The revaluation model requires that an item of property, plant, equipment or an intangible asset shall be carried at a revalued amount, being its fair value at the date of the revaluation, less any subsequent accumulated depreciation/amortisation and any subsequent accumulated impairment losses.
On the basis of above rules, following is the formula of Carrying amount under the revaluation model

 = revalued amount – accumulated depreciation – accumulated impairment losses

COMMENTS

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  1. I have my accounts mocks of grade 10 in a few days.
    I was so tensed that how will i understand this concept , but now it is easy and clear
    Thanks

    ReplyDelete
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Accounting Education: Revaluation Method of Depreciation
Revaluation Method of Depreciation
Accounting Education
http://www.svtuition.org/2013/07/revaluation-method-of-depreciation.html
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