06-25-2009, 08:35 PM
The assumption i had taken was that a revaluation reserve for the asset already existed.... which is consistent with IAS 16.40 according to which a decrease arising as a result of a revaluation should be recognized as an expense <b>to the extent that it exceeds any amount previously credited to the revaluation surplus</b> relating to the same asset.
After reading from the link u hav provided, i hav realized that I clearly had a wrong understanding regarding the separation of the revaluation element and the gain/loss on foreign exchange component.
If i separate the revaluation and foreign exchange component (as presented in the link u hav provided)...then in my example given above ...The Net Loss on Revaluation of Rs 60m would comprise of a Loss on Revaluation of Rs120m and a Foreign exchange Gain of Rs60m.
It is clear that the Loss on Revaluation of Rs120m would be deducted directly from the Revaluation Reserve(assuming revaluation reserve for the asset exists)...but the Foreign exchange gain of Rs60m cannot be taken in Profit and Loss as IAS 21.30 specifically states that <b>"When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss shall be recognised directly in equity."</b>
If the Revaluation Reserve for the asset doesn't exist, then u r correct to point out that the decrease in revaluation would be taken into P&L along with the Exchange component.
An interesting question is that what would be the treatment according to IAS 21.30-31 if the Revaluation Reserve does not have sufficient funds to account for the Loss in Revaluation? In such a case Revaluation Reserve for the asset would be completely eliminated and the remaining amount would be taken into P&L. But what will be the treatment for the Exchange component of the Net Loss in Revaluation? Will it be taken into equity or P&L? As a part of the loss on non-monetary item is recognised in equity(the amount eliminated in the Revaluation Reserve) and the remaining amount in P&L...will we recognize the Exchange component of the loss in Equity or P&L? My guess is that we would pro-rate the exchange component of the loss according to the amounts of the Revaluation component of the loss recognized in equity and P&L.... what do u think?
After reading from the link u hav provided, i hav realized that I clearly had a wrong understanding regarding the separation of the revaluation element and the gain/loss on foreign exchange component.
If i separate the revaluation and foreign exchange component (as presented in the link u hav provided)...then in my example given above ...The Net Loss on Revaluation of Rs 60m would comprise of a Loss on Revaluation of Rs120m and a Foreign exchange Gain of Rs60m.
It is clear that the Loss on Revaluation of Rs120m would be deducted directly from the Revaluation Reserve(assuming revaluation reserve for the asset exists)...but the Foreign exchange gain of Rs60m cannot be taken in Profit and Loss as IAS 21.30 specifically states that <b>"When a gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss shall be recognised directly in equity."</b>
If the Revaluation Reserve for the asset doesn't exist, then u r correct to point out that the decrease in revaluation would be taken into P&L along with the Exchange component.
An interesting question is that what would be the treatment according to IAS 21.30-31 if the Revaluation Reserve does not have sufficient funds to account for the Loss in Revaluation? In such a case Revaluation Reserve for the asset would be completely eliminated and the remaining amount would be taken into P&L. But what will be the treatment for the Exchange component of the Net Loss in Revaluation? Will it be taken into equity or P&L? As a part of the loss on non-monetary item is recognised in equity(the amount eliminated in the Revaluation Reserve) and the remaining amount in P&L...will we recognize the Exchange component of the loss in Equity or P&L? My guess is that we would pro-rate the exchange component of the loss according to the amounts of the Revaluation component of the loss recognized in equity and P&L.... what do u think?
