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Asset Revaluation Depreciation Guide

This document discusses statutory compliance regarding charging depreciation on revalued fixed assets in India. It notes guidance from ICAI that depreciation on revalued amounts should be charged to revaluation reserve rather than the depreciation account. It provides an example transaction and the correct accounting entries. SAP's standard behavior is then described, which does not comply. The solution created a new derived depreciation area to post the correct entry, reversing depreciation charged to the main account and charging it to the revaluation reserve instead.

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Manjunathreddy Seshadri
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336 views6 pages

Asset Revaluation Depreciation Guide

This document discusses statutory compliance regarding charging depreciation on revalued fixed assets in India. It notes guidance from ICAI that depreciation on revalued amounts should be charged to revaluation reserve rather than the depreciation account. It provides an example transaction and the correct accounting entries. SAP's standard behavior is then described, which does not comply. The solution created a new derived depreciation area to post the correct entry, reversing depreciation charged to the main account and charging it to the revaluation reserve instead.

Uploaded by

Manjunathreddy Seshadri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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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
Vendor A/c

Debit
Credit

1000
1000

Debit
Credit

200
200

On Posting of Revaluation
Asset A/c
General Reserve A/c

On Posting of Depreciation on Rs 1000


Depreciation A/c
Provision for Depreciation A/c

Debit
Credit

100
100

On Posting of Depreciation on revaluation amount of Rs 200


General Reserve A/c
Provision for Depreciation A/c

Debit
Credit

20
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
Provision for Depreciation A/c

Debit
Credit

120
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
Depreciation A/c

Debit
Credit

20
20

Summation of above two entries will give us the required accounting entry for depreciation i.e. below
entry
Depreciation A/c
General Reserve A/c
Provision for Depreciation A/c

Debit
Debit
Credit

100
20
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

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