### ZIMSEC O Level Principles of Accounts Notes: Calculating/Estimating depreciation: The Revaluation Method

• When there are a few big fixed assets it is easy to:
1. Ascertain the cost
2. Estimate its useful life
3. Calculate/estimate its depreciation
4. Account for its disposal
5. Calculate/estimate profit or loss on disposal
• For each asset because it is worth the effort
• There are times when this cannot be done mainly because
• It would be too expensive to track and account for the depreciation of each asset
• It might even be impossible to do this in some instances for some fixed assets
• A typical example is that of low cost fixed assets which are often bought in large numbers
• For example screw drivers and spanners in a garage or guns in an army
• It would be possible to calculate the depreciation of each screw driver, gun or spanner
• But it would not be worth it, in fact it is quite possible the cost of doing so would exceed the cost of each asset
• In such cases depreciation is calculated using the revaluation method
• The value of all the individual assets is added up
• The cost of additional fixed assets is added to this amount
• Then the value of the assets at the end of the period is subtracted
• The resulting figure would yield the depreciation for the year
 Combined value of assets at the beginning xxx Cost of assets bought during the year xxx xxxx Less combined value of assets at the end of the year (xxx) Depreciation xxxx
• The depreciation figure is then charged into the books
• Double entry for the revaluation method would be as follows:
 Asset Account Date Details Amount(\$) Date Details Amount(\$) 20x6 20x6 1 Jan Cash/Bank (during the year) xxx 31 Dec Profit and Loss xx 31 Dec Stock c/d xxx xxxx xxxx 20x7 20x7 1 Jan Stock b/d xxx 31 Dec Profit and Loss xx 5 June Cash/Bank (during the year) xxx 31 Dec Stock c/d xxxx xxxx xxxx
• Examples of the method will be encountered during the discussion of manufacturing businesses where they will be dealt with

To access more topics go to the Principles of Accounting Notes.

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