Loading presentation...

Present Remotely

Send the link below via email or IM

Copy

Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.

DeleteCancel

Make your likes visible on Facebook?

Connect your Facebook account to Prezi and let your likes appear on your timeline.
You can change this under Settings & Account at any time.

No, thanks

Gross replacement model

No description
by

Re-an Muller

on 8 October 2013

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Gross replacement model

Gross replacement model
Net
replacement model

Gross replacement model
IAS 16 – Property, Plant & Equipment
Revaluation value for
property
is normally
market value
Refers to the replacement value of a similar new unused asset

Learning
Anneke Moolman
Understanding the different replacement values and models on PPE:
Gross replacement
Net replacement

Outcomes
Understand when and how to realise revaluation reserves

PPE can be carried using:

Cost
model
Revaluation
model
Purpose of revaluating PPE?

To ensure equity is not reflected too low (reducing chances of financing)

To ensure the value of the company is reflected appropriately for i.e. take overs, mergers, etc.

To ensure depreciation is reflected at the right value and therefore the actual loss in value is reflected in the year it is attributable to

REVALUATION OF PPE
Revaluation value for plant and equipment can be:
Replacement Value
Market
Value
IAS 16 allows two
alternative accounting treatments
for depreciation when an asset is revalued:

Net replacement model

Gross Replacement Value
The accrued depreciation can be proportionately restated to be in line with the gross replacement value of the revaluated asset.

The revaluated amount of plant and equipment will therefore be shown at the inflated value less inflated depreciation.

Refers to the replacement value of a similar asset of the same age and/or level of use
Net Replacement Value
The accrued depreciation is therefore netted off the gross carrying amount. Depreciation is then calculated anew on the revaluated balance.

The accrued depreciation of the revalued asset is set off against the gross carrying amount.

(This is gross replacement value less accrued depreciation)
Revaluation
Example
Cost of machine 1 Jan 2001 = 100 000
Useful life 5 years (20% a year)
Fair value – 1 Jan 2002 = 90 000

Required:

Information:
Revalue the asset on 1 January 2002 using the:

Dr Machine (112,500-100,000) 12,500

Cr Accrued depreciation (22,500-20,000) 2,500
Cr Revaluation surplus (OCI) (90,000-80,000) 10,000
Journals:
Dr Accrued depreciation 20,000
Journals:
Cr Revaluation surplus (OCI) 10,000
Dr Machine 10,000

Cr Machine 20,000
Disclosure:
REALISING THE REVALUATION RESERVE
Fully at the sale of a revaluated asset; or
Gradually through use in line with depreciation
moves through retained earnings; or
stays in realisation reserve
Realise:
The realised portion:
Net
Gross
Example:
Realise the revaluation surplus recognised over the life of the asset
Solution:
The journals at the end of the year if no further change in value occurs:

Realising the revaluation reserve at 31 December 2002 and the next 3 years thereafter:

Dr Revaluation surplus 2,500
Cr Retained earnings 2,500
( 10,000/4 = 2,500 )
Questions?
Exercises
Q1
Q7
Q14
Full transcript