Treatment for revaluation of land
I would like to know weather or not it is permissible to issue bounce shares against reserve created out of revaluation of fixed assets, with references. If not, can the revaluation reserves be used for any purpose before the sale/ de-recognition of the fixed asset
No, the revaluation reserve is restricted to use for revaluation increases and decreases only, see IAS 16 PPE sub 39 – 41, only when assets are sold, the whole surplus will be realized in the income statement or when depreciated, that part may be released to the income statement.
In applying IFRS to the preparation of accounting records and financial statements, please note that one cannot ignore the Company Law of the country in which the entity is incorporated. In most countries, the Company Law specifies distributable and non-distributable reserves as well as the movements allowed between reserves and equity. Revaluation reserves would be considered in most countries as non-distributable reserves and hence released into the income statement on the derecognition of the related asset.
Following is the para 41 of IAS-16 so please first refer this:
The revaluation surplus included in equity in respect of an item of property, plant and equipment may be transferred directly to retained earnings when the asset is derecognised. This may involve transferring the whole of the surplus when the asset is retired or disposed of. However, some of the surplus may be transferred as the asset is used by an entity. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss.
That means that revalutions surplus can only be transferred to other reserves such as bonus reserves when and only when asset is derecgnized or when asset is used so the depreciations difference would be transferred from time to time.
But this also depends on the Company law of the country their would be treatment for such a surplus but IAS-16 restricts its use.
I hope it will help you.
Hello to all the members of IFRS LIST,
Can we ask about International Standards on Auditing (ISA’s) in this community???