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Incremental depreciation on revaluation surplus
03-06-2010, 05:56 PM,
Incremental depreciation on revaluation surplus
As per revised IAS 1, Companies shall prepare statement of comprehensive income.

Whether incremental depreciation on revaluation surplus should be credited in other comprehensive income or directly credited in equity.

As per IAS 1, all revaluation gains are shown in other comprehensive imcome but as per C.O. 1984, incremental depreciation will be directly credited to equity.
What is the recommended treatment????

03-06-2010, 11:59 PM,
This will be taken directly to SOCE.

SRO 45 issued by SECP (which amended section 233 of CO84) specifically requires it to be taken to SOCE and being the local law over rules IAS-1.

03-07-2010, 01:09 AM,
* * * section 235

Typo mistake.
03-07-2010, 05:03 AM,
Well Mohsin bro, being a student i just wanna add some more thing to the Answer of Kamran bhai in response to yours Querry
well buddy, Revised IAS-1 does not contradict with the Requirement of Company Ordinance
the Treatment of Incremental depreciation Due to Revaluation remains the same.
Infact,it requires just an additional information in Statement of Comprehensive Income
treatment will be like this
suppose building Carrying value = 200,000
Revalued Amount is 300000
therefore, Rs.100,000 being a Revaluation Income should be Disclosed in Statement of Comprehensive income not in Other income.
and the Accumulated of this will also be shown under the head Revaluation Surplus in Statement of changes in Equity
and Charge Additional Depreciation in the same manner as it was done before
means to say charge Directly to SOCE.
03-09-2010, 12:16 AM,
according to my knowledge only change in revaluation mean(incremantal - oiginal depr.) should be charge in other comprehensive incom.
it means 100,000 will not charge in SCI???????????????/
03-09-2010, 02:09 AM,
Dear Mohsin,

Plese check the financial statements of MCB Bank Limited from the website, under the statement of comperihensive income following is dislcosed.

Surplus/ deficit on revaluation of 'Available for sale' securities and 'fixed assets' are presented under a separate head below equity as 'surplus/ deficit on revaluation of assets' in accordance with the requirements specified by the State Bank of Pakistan vide its BSD circular 20 dated 04 August 2000 and BSD circular 10 dated 13 July 2004 and Companies Ordinance, 1984 respectively."

Icremental Depriciation is shown at the end of profit and loss account and befor appropriations

03-09-2010, 07:14 PM,

Whether comments of Mr. Kamran are not enough to show the incremental depreciation directly to SOCE.....?

Infact all the companies are following the revised IAS 1. The S.R.O of SECP as discussed by Mr. Kamran is not being considered by most of the auditors.
03-09-2010, 09:23 PM,
I think comments given by Kamran bhai are very brief but communicated the same message, i d, just given an illustration for your reference in support of the above comments.
03-09-2010, 09:26 PM,
You quoted that " In fact all the companies are following the revised IAS 1. The S.R.O of SECP as discussed by Mr. Kamran is not being considered by most of the auditors.Please give me example of such companies so that i could also update my knowledge in this regard.
03-10-2010, 06:37 PM,
You can check the condensed financial statements of Fazal Cloth Mills Limited for the period ended 31 December 2009. These condensed financial statements are reveiwed by a well known firm. IAS 1 is applied on the treatment of incremental depreciation arising from revaluation of fixed assets. Link is attached.
03-10-2010, 07:03 PM,
You can also check half year financial statements of 31 Dec 2009 of Sitara Chemical Industries Limited. Incremental depreciation is shown in Other comprehensive income rather than in SOCE.
03-11-2010, 06:32 AM,

In fact SOCI reflects changes in equity that are not the owners changes; yet it is more of a subordinate statement and we can argue whether it is a sub-part of SOCE or income statement because it falls between the two.

Since SOCI was entirely not in question while SRO 45 was issued, some people have difference of opinion on this. It does not mean they are not aware of this issue; rather, I believe in majority of cases they differ in opinion.

A similar difference was observed regarding FAIR VALUE RESERVE against available for sale investment; after adoption of SOCI that whether it is now to be treated as "capital reserve" or "revenue reserve".

Another issue is regarding a new componenet of the "complete set of financial statements" as defined in paragraph 10 (f) of revised IAS-1. This component requires publishing an additional balance sheet of the earliest period presented when a policy is changed or any other retrospective change is made eg prior period error etc. People do differ in opinion regarding how suchbalance sheet should be published. Some wished to include it in notes; but this idea was rejected because it is a componenet of financials and is not a part of notes. Some wished to prepare altogether two balance sheets in such a case; one of current year with last year as comparative (closing dates); and the other of the date that is earliest reported date.

However, latest illustrative financial statements prepared by world's most renowned international firms, in such cases of retrospective application, have suggested to prepare three columner balance sheet; current, comparative and earlest. All related notes will also show three columns and three dates' figures.

These all are different viewpoints and such differences will reduce over a shorter period of time, I guess.

However, I firnly believe that in the light of SRO 45, incremental depreciation on revaluation surplus should not be routed through SOCI and must directly be taken to SOCE.


03-12-2010, 06:14 PM,
Dear Mohsin,

I have checked the financial statements of Sitara audited by MYASCO, but i agree with Kamran bhai that Section 235 will prevail and incremental deprecation will be routed through SOCE instead of SOCI. If MYASCO is agreed on incremental depreciation being routed through SOCI they may have some professional opinion and logic and currently, i am not aware of that logic.
03-12-2010, 06:24 PM,
The only logic would be the application of Revised IAS 1
03-14-2010, 05:21 PM,
I think we should present the financial statements same as are given in IG of IAS-1. Fourth schedule is useless now. isnt it?

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