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CA Intermediate · Advanced Accounting · AS 10 Property, Plant and Equipment

Gomti Ltd. revalued its entire class of plant upward. Plant had a book value of Rs 10,00,000 (cost Rs 15,00,000, accumulated depreciation Rs 5,00,000) and was revalued to Rs 14,00,000. Earlier, an impairment/downward revaluation of the same plant had been charged to profit and loss of Rs 1,00,000. Following AS 10 and the Guidance Note approach commonly taught, what is the amount credited to revaluation reserve on this upward revaluation, assuming the earlier Rs 1,00,000 decrease is first reversed through profit and loss?

Rs 3,00,000 is credited to revaluation reserve. The total increase is Rs 4,00,000 (14,00,000 less 10,00,000 book value). Rs 1,00,000 of it reverses an earlier decrease charged to profit and loss and is credited there, leaving the balance for the reserve.

  1. ARs 3,00,000Correct
  2. BRs 4,00,000
  3. CRs 2,00,000
  4. DRs 1,00,000

Explanation

Total increase = 14,00,000 - 10,00,000 = Rs 4,00,000. To the extent it reverses a previous decrease charged to profit and loss, Rs 1,00,000 is credited to profit and loss. The balance, 4,00,000 - 1,00,000 = Rs 3,00,000, goes to revaluation reserve. Rs 4,00,000 ignores the reversal.

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