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.
Revaluation Model of Depreciation
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
= revalued amount – accumulated depreciation – accumulated impairment losses
Related : Insurance Policy Method of Depreciation
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ReplyDeleteI was so tensed that how will i understand this concept , but now it is easy and clear
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Hello How should I treat Revalue of $250000 from $100000
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