Asset Revaluation (Charging of depreciation through Revaluation Reserve)

Statutory Compliance

Guidance note has been issued on Treatment of Reserve created on Revaluation of Fixed Assets by

ICAI and as per Para 12, it “will be prudent not to charge additional depreciation against revaluation

reserve” i.e. Depreciation on revaluation portion as posted on asset should be debited to revaluation

reserve rather to depreciation account.

E.G –

1. Acquisition Value of asset – Rs 1000

2. Revaluation Posted – Rs 200

3. Rate of depreciation – 10% (Reducing balance method)

As per the compliance following entries should be posted

On Posting of Asset Acquisition

Asset A/c Debit 1000

Vendor A/c Credit 1000

On Posting of Revaluation

Asset A/c Debit 200

General Reserve A/c Credit 200

On Posting of Depreciation on Rs 1000

Depreciation A/c Debit 100

Provision for Depreciation A/c Credit 100

On Posting of Depreciation on revaluation amount of Rs 200

General Reserve A/c Debit 20

Provision for Depreciation A/c Credit 20

SAP Standard Behavior – System merges the Net Book Value of the asset with Revaluation amount and

charge depreciation on total amount as per GLs maintained in AO90. Following entry got posted:-

On Posting of Depreciation

Depreciation A/c Debit 120

Provision for Depreciation A/c Credit 120

Issue addressed in this workaround – To charge depreciation on revaluation figures from Revaluation

Reserve rather than depreciation account i.e. Rs100 from depreciation & Rs20 from reserves.

Solution Carried Out

Considering entry of Rs120 posted by sap, another entry of Rs20 is derived from new depreciation area

with an objective to reverse the depreciation of Rs20 from depreciation account & to charge the same

from revaluation reserve account.

Entry required from derived depreciation area

On Posting of Depreciation

General Reserve A/c Debit 20

Depreciation A/c Credit 20

Summation of above two entries will give us the required accounting entry for depreciation i.e. below

entry

Depreciation A/c Debit 100

General Reserve A/c Debit 20

Provision for Depreciation A/c Credit 120

Customization Done

1. Creation of two new Depreciation Area –

One With No Posting in G/L & No values Allowed in Revaluation.

2. Other one is derived depreciation area –

With posting indicator 3 & derived value from Real Depreciation area & 70 Depreciation Area

3. Delimit of transaction type 800 from depreciation area 70 – To ensure revaluation should not

get posted in depreciation area 70

4. GL Assignment in AO90

The above solution is explained with the help of below example

ABAW – Revaluation Posted – This transaction will not get posted in depreciation area 70 & thus we get

differential amount in depreciation area 75.

Accounting entry for depreciation area 01

Accounting entry for depreciation area 75