In the example statement of changes in equity given on Page 300 in the CMP there is a line for Depreciation transfer, land and buildings (with an amount of -750 in Other reserves) however I couldn't see depreciation transfer defined in the notes. I've seen depreciation transfer used for transferring excess depreciation on a revalued asset from the revaluation reserve to retained earnings however here, the transfer just reduces Other reserves and there's no corresponding increase to Retained earnings so that doesn't seem to be what's happening here. Wondering if someone could clarify what the amount on this line means and how it might arise in the accounts.
Hi Sam, This is a very good question! I'm afraid I'm not exactly sure what this item relates to either. You're right that companies can adjust their revaluation reserve for excess depreciation but there should be a corresponding adjustment to retained earnings. It can't be put through the profit for the year, according to IAS 16. Example 11 on this website gives a good overview of how this should work (solutions are in 'Related Links' at the top of the page) - note that this is outside the scope of CB1, so for interest only. I can't think of anything else this adjustment might relate to. It therefore looks like this might be a small error in the CB1 Core Reading - there should really be a corresponding retained earnings adjustment. However, depreciation transfer is not covered in the CB1 Syllabus or Core Reading, so this shouldn't come up in the exam. I'm checking with the other CB1 tutors to see if any of them have any bright ideas about this odd item, so will post again if they think it's anything other than an error. I hope that helps - sorry I can't give you a more satisfying answer! Thanks Lucy
