When an item of property,plant and equipment is derecognised the treatment of any asset revaluation reserve that relates to an asset include:
A) debiting the asset revaluation reserve in the journal entry to record the profit or loss on sale of the asset.
B) transferring the relevant amount out of the asset revaluation reserve and showing it as revenue in the income statement.
C) transferring the asset revaluation reserve to retained earnings.
D) writing off the amount out of the asset revaluation reserve against the remaining assets in the class of assets to which the asset that was sold belonged.

Question

Quizplus · Accepted Answer

When an item of property, plant and equipment is derecognised, the asset revaluation reserve relating to that asset should be transferred to retained earnings. This is because the revaluation reserve reflects the increase in value of the specific asset, and as the asset is no longer owned, the reserve should also be removed from the balance sheet. This transfer can be recorded through a journal entry that credits the asset revaluation reserve and debits retained earnings. Option A is incorrect because the asset revaluation reserve should not be debited for the profit or loss on sale of the asset, as this is a separate account. Option B is incorrect because the asset revaluation reserve should not be transferred to revenue, as this would be incorrect from an accounting perspective. Option D is incorrect because the asset revaluation reserve should not be written off against the remaining assets in the same class, as this would result in an overstatement of the remaining assets' value.

When an Item of Property,plant and Equipment Is Derecognised the Treatment