Principles of Accounting: The Revaluation Method

////Principles of Accounting: The Revaluation Method

Principles of Accounting: The Revaluation Method

ZIMSEC O Level Principles of Accounts Notes: Calculating/Estimating depreciation: The Revaluation Method

  • When there are a few big fixed assets it is easy to:
    1. Ascertain the cost
    2. Estimate its useful life
    3. Calculate/estimate its depreciation
    4. Account for its disposal
    5. Calculate/estimate profit or loss on disposal
  • For each asset because it is worth the effort
  • There are times when this cannot be done mainly because
  • It would be too expensive to track and account for the depreciation of each asset
  • It might even be impossible to do this in some instances for some fixed assets
  • A typical example is that of low cost fixed assets which are often bought in large numbers
  • For example screw drivers and spanners in a garage or guns in an army
  • It would be possible to calculate the depreciation of each screw driver, gun or spanner
  • But it would not be worth it, in fact it is quite possible the cost of doing so would exceed the cost of each asset
  • In such cases depreciation is calculated using the revaluation method
  • The value of all the individual assets is added up
  • The cost of additional fixed assets is added to this amount
  • Then the value of the assets at the end of the period is subtracted
  • The resulting figure would yield the depreciation for the year
Combined value of assets at the beginningxxx
Cost of assets bought during the year

xxx

xxxx
Less combined value of assets at the end of the year(xxx)
Depreciation

xxxx

  • The depreciation figure is then charged into the books
  • Double entry for the revaluation method would be as follows:
Asset Account
DateDetailsAmount($)DateDetailsAmount($)
20x620x6
1 JanCash/Bank (during the year)xxx31 DecProfit and Lossxx
31 DecStock c/dxxx

xxxx

xxxx

20x720x7
1 JanStock b/dxxx31 DecProfit and Lossxx
5 JuneCash/Bank (during the year)xxx31 DecStock c/dxxxx

xxxx

xxxx

  • Examples of the method will be encountered during the discussion of manufacturing businesses where they will be dealt with

To access more topics go to the Principles of Accounting Notes.

 

By |2017-08-25T11:38:19+00:00August 25th, 2017|Notes, Ordinary Level Notes, Principles of Accounts Notes|Comments Off on Principles of Accounting: The Revaluation Method

About the Author:

He holds an Honours in Accountancy degree from the University of Zimbabwe. He is passionate about technology and its practical application in today's world.
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