Allow Accumulated Depreciation/Amortisation accounts in journals

Possible to allow the accumulated depreciation accounts of fixed assets available for journal entries?

I wanted to do a journal entry in the system after revaluation of a fixed asset but could not see the accumulated Depreciation accounts.

Under IFRS, I have to write off accumulated depreciation just like the journal entry below.


So in my case, i would select Accumulated depreciation , then select the asset and then enter the amount there to balance off the accumulated depreciation balance of that asset.

If anyone knows how I could go about and achieve what the journal entry there is achieving neatly in the system please share with me.

So if we put some figures to the transaction so the picture can be seen.

There is an existing fixed asset with a value of 5,000 and accumulated depreciation of 2,000.
The fixed asset is going to be re-valued to 9,000 - so the journal above would be.
Debit Accum Depn 2,000
Debit Fixed Asset 4,000
Credit Revalue Surplus 6,000

A suggestion would be to dispose of the existing asset using the existing disposal process for a zero gain/loss
Debit Accum Depn 2,000
Credit Fixed Asset 5,000
Debit (clearing Acct) 3,000

Then take up a new (or replacement to existing) fixed Asset
Debit Fixed Asset 9,000
Credit (clearing Acct) 3,000
Credit Revalue Assets 6,000

Ok, so the above disposal is the Journal layout, but to do it in Manager:
Credit Fixed Asset 3,000
Debit (clearing Acct) 3,000
This will leave an asset of 2,000 and Accum Depn of -2,000, next tick the Fixed Asset Disposal tick box and that will clear the 2,000’s.

Thanks @Brucanna i will try that and see the effect

I’m wondering why this is an issue at all. @Abeiku, your initial question is about how “to write off accumulated depreciation.” But I don’t understand why you would do that. Accumulated depreciation is just the summation of all prior depreciation expense entries. Depreciation-related transactions occur through the current Depreciation expense account. Accumulated depreciation only needs to be zeroed at time of disposal. But your question seemed to focus on revaluation, not disposal. What am I missing here?

@Brucanna’s approach seems cumbersome and will obscure the history of a fixed asset. Since standards require at least annual revaluation if using the revaluation model for asset recognition, an asset with a 20 year life will have its history spread over 20 asset records. And as you look at the latest, it would violate the requirement that all assets initially be stated at cost, because the initial cost would be the most recent revalued cost. That might not pass audit. Plus, there are additional reporting requirements for revalued assets.

But you can add or subtract value to a fixed asset with a journal entry, preserving its history. The current period depreciation is calculated by whatever method is appropriate and applied as a current expense. The value addition shows up as an addition in the Fixed Asset Summary. The depreciation also shows, contributing to Accumulated depreciation. Their difference is book value.

Again, this all seems more complex than it needs to be, causing me to wonder whether I’m understanding your problem correctly.

No, as stated “Under IFRS, I have to write off accumulated depreciation”

Because that is the course of action under consideration, the asset is being revalued not being disposed

The question would be, is the revaluation based on gross or nett.
Taking the earlier figures - Fixed Asset cost @ 5,000 and Accum Depn at 2,000

If the asset is revalued to 9,000 - market value, then its worth 9,000 not 9,000 - 2,000.
Otherwise you are saying its 11,000 - 2,000 to = 9,000.

Only because Manager doesn’t allow direct entries to the Accum Depn control account, without that restriction the cumbersomeness vanishes.

@Tut yeah it the IFRS way. You have to zero out the accumulated depreciation.

I’m thinking @lubos will remove that limitation and allow this to be easily done.

@Abeiku, @Brucanna, can you provide me a link explaining why accumulated depreciation needs to be zeroed upon revaluation. IAS 16.48 explicitly says depreciation is charged to P&L. Doing otherwise makes no sense to me.

Consider a small thought experiment: the goal of IFRS’ revaluation model is to carry fixed assets at their present value, not depreciated initial cost. The rules for revaluation, redetermination of appropriate depreciation method, re-examination of remaining useful life, estimated disposal costs, etc., can be pretty complex. But depreciation is still a current expense no matter how it is determined. And book value is still value less accumulated depreciation. If I am allowed to increase value yet simultaneously zero accumulated depreciation, I could end up depreciating and deducting not only my initial cost, but inflated worth, and I could do that many times over. No authority is going to allow you deduct more than the asset’s eventual worth (after accounting for initial purchase, installation, freight, growth in value, cost of disposal, and all the other possibilities). And that deduction is going to be offset by any proceeds from disposal.

So if I’m wrong, please point me to a reference that explains why. I don’t need more explanations of what either of you has already said. I understand your points. They just seem to violate good accounting practice, and I can find no justification for them in the IAS.

As a last point, don’t lose sight of the fact that IAS also allows the cost model for fixed asset depreciation. The revaluation model is just one method.

@Tut that is how it done else there will be problems on how you report the revaluation.
Take for example an asset bought for 1000 with accumulated depreciation of 450 and therefore with carrying value of 550
Now market value of the asset requires the asset to be stated in the books as having a carrying value/worth of 1200 as at the day of revaluation.

The assumption is that 650 is the gain the market value suggests and must be recognised. if we sideline the Accumulated Depreciation account and debit the asset with 650 and credit revaluation account with 650 the carrying value will end up being 750 far below the market value by 450 (the acc dep amount). This situation will require a higher amount to be recognised in the value of the asset and the surplus account (650+450 =1100) which would be overstating surplus.

Now if the asset was to be revalued to 600 the right thing to do would be

Dt: Accumulated Depreciation 50
Ct: Revaluation surplus 50 in other component of equity

Remember depreciation for the year is calculated on the carrying value ( Asset value - Accumulated Dep. x depreciation rate).

in IFRS a downward revaluation is a loss and must be in the P/L unless it is reversing an earlier gain. If it reversing an earlier gain the remainder is sent to p/L .

There is a discussion on this page on that topic

The cost model is there as well, but many prefare revaluation model which reflect the true worth of assets

Thanks, @Abeiku, but that’s another discussion by people who don’t agree with one another. I was hoping for something from IAS.

Honestly I don’t read the whole standard documents. I read summaries. I will find time and go through the standards and let you get it. But this is the practice globally.

Not quite globally. We don’t use the revaluation method in my country. :wink: That may be why I don’t understand the accumulated depreciation aspect of it. The part about increasing asset value makes sense. But when you throw in the idea of zeroing out accumulated depreciation, it starts to sound like what we call a “rubber baseline,” A lot of people have gone to jail for crimes that sound very similar. I look forward to learning more. :innocent:

I’m sure the FASB has standards on recognising gains and losses on non current assets.

Check it out

Great Discussion guys. I really enjoy this.
Using the above data. I think, IAS 16 will require a recognition of the Reverluation Reserve of 650 and Revalued Asset of 1650. i.e

1,000 + 650 - 450 = 1,200 Asset and 650 Revaluation Reserve. There is no need to Write off the Accum Depretn.

OK, I finally found some examples that explain things. What was not clear from the prior discussion is that, if you are going to zero accumulated depreciation, you do so by crediting it back to the asset’s value and then restating depreciation from the beginning. The other way is to continue depreciation on the original value of the asset and depreciate the portion of Revaluaiton surplus applicable to this asset.

Of the various ways to accomplish revaluation and restatement of accumulated depreciation, all ensure that you are only depreciating the asset once. No one goes to jail. :smiley:

Now that I understand things better, my experiments suggest this can all be accomplished through the existing fixed assets capabilities. You can add value with a journal entry. You can change an asset’s depreciation history with new depreciation entries, positive or negative. This has the advantage of properly allocating all transactions to individual assets, as required by IFRS and IAS. Otherwise, it seems you’d have to go down the road of special accounts. (Not having worked through complete examples, I can’t say for sure whether you need special accounts under a Revaluation surplus control account. But you should be able to do it, if necessary.

This will have effect in the income statement. What we are discussing here is a balance sheet activity. Try it and see. A negative entry in accumulated depreciation in manager will credit the depreciation expense account in the P/L.

You can’t find that expense account in journals either else you could then debit the depreciation expense account and credit the revaluation account to land it in the revaluation account

@OLUBOYE try putting your suggestion in a journal entry , I don’t think it will balance off.
By debiting asset by 1000 what account do you credit? Crediting revaluation surplus account will balance only by 1000 which will be way over the surplus identified.
So asset carrying value would be correct but the surplus would be overstated.

Oh, I forgot that. I just looked at what it did on the balance sheet side. I give up. :laughing: I moved this topic to the Ideas category. I think before @lubos does anything on this, he will ask @tony’s advice.

Yes and so it should, as you have over stated the devaluing of the asset.
Take my original asset at 5000 and Accum Depn of 2000, so a book value of 3000.

If that asset then gets a revised current value of 5000, then the Accum Depn to date gets reversed as it has been over claimed in the past.

If its revaluing or disposing of the asset the outcome is the same.
Lets say we sold the asset for 5000, then you would book a profit on sale of 2000, the same as the reversed Accum Depn.

The revaluation process is the “disposing” of current values and the “acquisition” of new values.
To dispose of the current values you need to take the asset back to zero first before re-instating with new values. Trying to add values together doesn’t work.

I am sorry that I didn’t make the mechanics of this process much clearer in my first post where I got distracted by working out how the Manager depreciation system works, however I did state (unclearly):
a) A suggestion would be to dispose of the existing asset using the existing disposal process for a zero gain/loss
b)Then take up a new (or replacement to existing) fixed Asset

It a write off, that may have accumulated over some periods that is why the best place for the corresponding entry is inside Other Component of Equity in a surplus account and not in the Income Statement

This is not the idea behind the move. The idea is that, the asset has appreciated in that period of revaluation and therefore the accumulated depreciation account should be written off and the remainder added to the asset itself to give it a new book value and then be spread over the remainder of the useful life of the asset in new depreciation entries. This ensures the realisation of the gain is spread over the remainder useful life of the asset. An instant effect in the income statement is realisation of the appreciation of the asset in just one period. Realisation in just one period happens only in the sale of the asset.

So far your suggestion in comment 2 is the one close to making this work, i haven’t tried it though.

Hi All, like i said in my Previous Chat.
The only entry to recognise the Revaluation Reserve is

Dr Asset 650
Cr Revaluation Reserve 650

This will make the asset to be 1000 + 650 = 1,650
Accum Depreciation will be unchanged at 450

Thus Asset will be 1,650,
Accum Deprn 450
Net Asset 1,200
Revaluation Reserve 650