Revaluation Method of Depreciation (Cambridge International A-Level Accounting)

Revaluation depreciation

Spec point — how to measure the value of non-current assets by the cost model or the revaluation model

What is the revaluation method of depreciation?

• The revaluation method of depreciation involves performing a valuation of assets at the end of the financial year to determine the reduction in value

• This method is commonly used for assets of smaller value

  • Such as loose tools, packing cases

Example of an asset, which cost $20 000, being charged depreciation using the revaluation method each year

How do I calculate depreciation using the revaluation method?

• A revaluation of the non-current asset will be given in the question

• To calculate the depreciation charge for the year:

  • start with the value at the start of the year
  • add any purchases of that type of non-current asset
  • subtract the revaluation amount at the end of the year

Worked Example Abi's loose tools were values at $5 000 on 1 March 2023. On 1 August 2023, Abi purchased additional loose tools costing $1 500.

On 29 February 2024, at the end of the financial year, the fixtures and fittings were valued at $4 650.

Calculate the depreciation charged for the financial year ending on 29 February 2024.

Answer:

• Value at the start of the year is $5 000

• Purchases during the year totalled $1 500

• Value after the revaluation is $4 650

• Calculate the depreciation charge

  • Add the purchases to the starting value
  • Subtract the revaluation

$5 000 + $1 500 - $4 650 = $1 850