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

Mehta Exports Ltd has land carried at cost Rs 40,00,000. On 31 March 2025 it revalued the land to Rs 55,00,000, crediting revaluation reserve Rs 15,00,000. On 31 March 2026 the land was revalued down to Rs 46,00,000. Under AS 10, how should the decrease of Rs 9,00,000 be treated?

The whole Rs 9,00,000 decrease is debited to the revaluation reserve. A revaluation decrease is set against any existing surplus on the same asset, and the available surplus of Rs 15,00,000 is larger than the decrease. Nothing is charged to profit and loss, and Rs 6,00,000 of reserve remains.

  1. ADebit entire Rs 9,00,000 to profit and loss
  2. BDebit Rs 9,00,000 to revaluation reserveCorrect
  3. CDebit Rs 6,00,000 to revaluation reserve and Rs 3,00,000 to profit and loss
  4. DIgnore the decrease until the land is sold

Explanation

A decrease on revaluation is charged against the existing revaluation surplus of the same asset to the extent of that surplus. Surplus available is Rs 15,00,000, which exceeds the Rs 9,00,000 decrease, so the whole decrease is debited to revaluation reserve, leaving Rs 6,00,000. Charging profit and loss would be correct only for any excess over the surplus.

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