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A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account?
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A plant with original cost of 50,00,000 was revalued after 2 years res...
Impact of Downwards Revaluation on Profit and Loss Account
Introduction
In this scenario, a plant was revalued after 2 years resulting in a credit to Revaluation Surplus account of 4,00,000. However, due to COVID-19, the plant value has gone down by 5,00,000, and the management has decided to revalue the same. The impact of this downwards revaluation on the profit and loss account can be explained as follows:
1. Recognition of Impairment Loss
When a company revalues its assets downwards, it is an indication that the asset has become impaired. Impairment is the difference between the current fair value of the asset and its carrying value on the balance sheet. In this case, the downwards revaluation of the plant by 5,00,000 will result in an impairment loss of the same amount. This loss needs to be recognized in the profit and loss account.
2. Reduction in Net Income
The recognition of impairment loss in the profit and loss account will reduce the net income of the company. The net income is calculated by deducting all expenses from the revenue earned. The impairment loss will reduce the value of the plant, and hence, the revenue earned from it will also be reduced. This will result in a reduction in net income.
3. Impact on Retained Earnings
The profit and loss account is a part of the retained earnings of the company. Retained earnings are the accumulated profits of the company that have not been distributed as dividends. The downwards revaluation of the plant will reduce the value of the retained earnings. This reduction will impact the financial position of the company and its ability to pay dividends to shareholders.
Conclusion
In conclusion, the downwards revaluation of the plant will have a negative impact on the profit and loss account of the company. The recognition of impairment loss will reduce the net income, and the reduction in retained earnings will impact the financial position of the company. It is important for companies to regularly revalue their assets to ensure that they are properly accounted for and to avoid any future losses.
Introduction
In this scenario, a plant was revalued after 2 years resulting in a credit to Revaluation Surplus account of 4,00,000. However, due to COVID-19, the plant value has gone down by 5,00,000, and the management has decided to revalue the same. The impact of this downwards revaluation on the profit and loss account can be explained as follows:
1. Recognition of Impairment Loss
When a company revalues its assets downwards, it is an indication that the asset has become impaired. Impairment is the difference between the current fair value of the asset and its carrying value on the balance sheet. In this case, the downwards revaluation of the plant by 5,00,000 will result in an impairment loss of the same amount. This loss needs to be recognized in the profit and loss account.
2. Reduction in Net Income
The recognition of impairment loss in the profit and loss account will reduce the net income of the company. The net income is calculated by deducting all expenses from the revenue earned. The impairment loss will reduce the value of the plant, and hence, the revenue earned from it will also be reduced. This will result in a reduction in net income.
3. Impact on Retained Earnings
The profit and loss account is a part of the retained earnings of the company. Retained earnings are the accumulated profits of the company that have not been distributed as dividends. The downwards revaluation of the plant will reduce the value of the retained earnings. This reduction will impact the financial position of the company and its ability to pay dividends to shareholders.
Conclusion
In conclusion, the downwards revaluation of the plant will have a negative impact on the profit and loss account of the company. The recognition of impairment loss will reduce the net income, and the reduction in retained earnings will impact the financial position of the company. It is important for companies to regularly revalue their assets to ensure that they are properly accounted for and to avoid any future losses.
Community Answer
A plant with original cost of 50,00,000 was revalued after 2 years res...
Loss of 4,00,000 will first be charged from revaluation reserve account and 1,00,000 will be charged from P/L account. P/L A/c will be Debited by 1,00,000.
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A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account?
Question Description
A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account?.
A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account?.
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A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account?, a detailed solution for A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? has been provided alongside types of A plant with original cost of 50,00,000 was revalued after 2 years resulting in credit to Revaluation Surplus account of 4,00,000. Towards the year end of 2019-20, due to COVID-19 the plan value ha gone down by 5,00,000 and accordingly management decided to revalue the same. What shall be t impact of this downwards revaluation on the profit and loss account? theory, EduRev gives you an
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