On January 1,2015, ABC Corporation acquired a building at a cost of P 22,000,000. The building has been depreciated using the straight-line basis of a 20-year life, with a residual value of P 2,000,000. On January 1,2020, an appraisal of the building by professional and competent appraisers reported a fair value of P 20,000,000, with an estimated residual value of P 3,000,000 and a remaining useful life of 10 years. It is the company's policy to transfer a portion of the revaluation surplus to retained earnings while the asset is being used by the company. Assume that the accumulated depreciation of the revalued asset is restated proportionately with the change in the gross carrying amount of the asset. What is the revaluation surplus recognized in the accounts at January 1,2020Required to answer.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1,2015, ABC Corporation acquired a building at a cost of P 22,000,000. The building has been
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