Page 224 - DMGT104_FINANCIAL_ACCOUNTING

Financial Accounting

Notes profit and loss statement. A decrease in net book value arising on revaluation of fixed
asset should be charged directly to the profit and loss statement except that to the extent
that such a decrease is related to an increase which was previously recorded as a credit to
revaluation reserve and which has not been subsequently reversed or utilized, it may be
charged directly to that account.
5. On disposal of a previously revalued item of fixed asset, the difference between net disposal
proceeds and the net book value should be charged or credited to the profit and loss
statement except that to the extent that such a loss is related to an increase which was
previously recorded as a credit to revaluation reserve and which has not been subsequently
reversed or utilized, it may be charged directly to that account.
Illustration 2: Amar Club purchased a plant on 1st January, 2003, for 150 lakhs. The machine was
depreciated on straight line basis for the year 2003, 2004, 2005 and 2006, using a depreciation rate
of 10% p.a. On 1st January, 2007 the machine was revalued at 135 lakhs and the same was adopted.
What will be the carrying cost of plant as on 31.12.2008. There will be no change in the economic
life of the plant.
Solution:
Calculation of Carrying Cost of Plant
( in lakhs)
Purchase of Plant on 1st Jan. 2003 150
150 ´ 10 ´ 4 60
Less: Depreciation @10% p.a. for 4 years
100
Balance on 1st January, 2007 90
Add: Credit given due to revaluation (135-90) 45
Revaluation of plant 135
Less: Depreciation for 2007
(as the remaining life of the plant is only 6 years therefore, 1/6 of the revalued plant 22.5
will be 1/6 of 135)
Balance on 1st Jan., 2008 112.5
Less: Depreciation for 2008 22.5
Balance of plant on 31st Dec. 2008 90.00

10.1.4 Valuation of Fixed Tangible Assets in Special Cases

In such cases the principles given in the AS-10 are adopted for the valuation of fixed assets. These
are given below:
1. In the case of fixed assets acquired on hire purchase terms, although legal ownership does
not vest in the enterprise, such assets are recorded at their cash value, which if not readily
available, is calculated by assuming an appropriate rate of interest. They are shown in the
balance sheet with an appropriate narration to indicate that the enterprise does not have
full ownership thereof.
2. When an enterprise owns fixed assets jointly with others (otherwise a partner in a firm),
the extent of its share in such assets, and the proportion in the original cost, accumulated
depreciation and written down value are stated in the balance sheet. Alternately, the pro-
rata cost of such jointly owned assets is grouped together with similar fully-owned assets.
Details of such jointly owned assets are indicated separately in the fixed assets register.
3. Where several assets are purchased for a consolidated price, the consideration is apportioned
to the various assets on a fair basis as determined by competent valuers.

218 LOVELY PROFESSIONAL UNIVERSITY