Question 2 OR (b)
Journal entries for revaluation of PPE
6 marks
- Time to write
- About 12 minutes
- Notes
- Crux notes
Question
Question 2 OR (b) · 6 marksM/s Sanchit and Co. had a property plant and equipment with a book value of ₹20,00,000 on 31st March 2025. The entity follows the practice of revaluating its assets on a yearly basis. The fair value was assessed on 31st March 2025. Pass the journal entries required in each of the following cases:
If, as a result of the revaluation done 31st March 2025, the fair value was ₹23,00,000.
If in the previous year the property had been revalued downwards by ₹3,00,000, a decrease of that asset being recognised in the profit and loss account, and the fair value was assessed at ₹23,00,000 on 31st March 2025.
If in the previous year the property had been revalued downwards by ₹2,00,000, decrease of that asset being recognised in the profit and loss account, and the fair value was assessed at ₹23,00,000 on 31st March 2025.
Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.
Before you write
Read off the question and its marks
Read from the question
- (i)–(iii)3 items, each marked on its own: give each its share.
- Pass the journal entriesEach entry: the date, the debit and credit lines, and a one-line narration.
What the paper leaves open
Case (i) gives no earlier revaluation, unlike cases (ii) and (iii), which each state the previous year's; it is read as the first revaluation, so the whole increase goes to revaluation surplus. If an earlier decrease had been charged to profit and loss, part of the increase would be credited there instead, as in cases (ii) and (iii).
Write it in this order
- Read the data; tick every adjustment as you plan it 1 min
- 1 Case (i): increase credited to Revaluation Surplus 2 marks 3 min
- 2 Case (ii): full reversal to P&L of the prior downward charge 2 marks 3 min
- 3 Case (iii): split reversal-to-P&L / balance-to-surplus 2 marks 3 min
- Check: every adjustment used, both sides agree, dates in 2 min
Final answer
Check your own figures against these.
- (i) surplus
- ₹3,00,000
- (ii) P&L
- ₹3,00,000, surplus nil
- (iii) P&L
- ₹2,00,000 + surplus ₹1,00,000
Try it first. About 12 minutes for 6 marks. Write it out, then open the solution and check your figures against the final answer.
Solution
Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.
Principle. An increase in carrying amount on revaluation is credited to Revaluation Surplus (equity) — except to the extent it reverses a decrease of the same asset previously charged to the profit and loss account, which is credited back to the profit and loss account. Here the increase is ₹23,00,000 − ₹20,00,000 = ₹3,00,000 in every case. This is paragraph 42 of AS-10: the increase is credited directly to owners' interests under the heading of revaluation surplus, but is “recognised in the statement of profit and loss to the extent that it reverses a revaluation decrease of the same asset previously recognised” there. (The mirror rule for decreases, paragraph 43, charges a decrease to profit and loss except to the extent of an existing credit balance in the surplus.)
Case (i): first revaluation (no prior downward charge). Entire ₹3,00,000 to surplus:
| Dr (₹) | Cr (₹) | |
|---|---|---|
| PPE A/c......... Dr | 3,00,000 | |
| To Revaluation Surplus A/c | 3,00,000 |
Case (ii): prior downward ₹3,00,000 was charged to P&L. The whole increase reverses that earlier loss, so all ₹3,00,000 goes to P&L; nothing to surplus:
| Dr (₹) | Cr (₹) | |
|---|---|---|
| PPE A/c......... Dr | 3,00,000 | |
| To Profit & Loss A/c (reversal of earlier loss) | 3,00,000 |
Case (iii): prior downward ₹2,00,000 was charged to P&L. The increase reverses that ₹2,00,000 through P&L; the remaining ₹1,00,000 is credited to surplus:
| Dr (₹) | Cr (₹) | |
|---|---|---|
| PPE A/c......... Dr | 3,00,000 | |
| To Profit & Loss A/c (reversal, ₹2,00,000) | 2,00,000 | |
| To Revaluation Surplus A/c (balance) | 1,00,000 |
Result: (i) surplus ₹3,00,000 · (ii) P&L ₹3,00,000, surplus nil · (iii) P&L ₹2,00,000 + surplus ₹1,00,000.
Two further points from AS-10. A firm that revalues must revalue the entire class of property, plant and equipment to which the asset belongs, and keep its revaluations up to date: the yearly revaluation here does so (paras 39, 41). The surplus credited in cases (i) and (iii) stays in owners' interests; it may be transferred to revenue reserves when the asset is derecognised, and such transfers are not made through the statement of profit and loss (para 44).
Where the 6 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Case (i): increase credited to Revaluation Surplus | 2 |
| 2 | Case (ii): full reversal to P&L of the prior downward charge | 2 |
| 3 | Case (iii): split reversal-to-P&L / balance-to-surplus | 2 |
| Total | 6 |
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