South Africa IAS 16 PPE: Journals to record impairment

Oct 27, 2023
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South Africa

How would the journals work for an impairment on a non-current asset: (BS = balance sheet, IS = Income Statement)


Year 1: Purchase at 1,000,000.00
Year 2: Revaluate to 2,000,000.00
Year 3: Revaluate to 200,000.00
Depreciation = useful life is 5 years

This is how far I got but I don't know if it is correct:

Year 1:
DT Asset @ cost 1,000,000.00 (BS)
CR Bank 1,000,000.00 (BS)
DT Depreciation 200,000.00 (IS) (1,000,000.00 / 5)
CR Accumulated depreciation 200,000.00 (BS)

Year 2:
DT Asset @ cost 1,000,000.00 (BS)
CR Revaluation surplus 1,000,000.00 (BS)
DT Accumulated depreciation 200,000.00 (BS)
CR Revaluation surplus 200,000.00 (BS)
DT Depreciation 500,000.00 (IS) (2,000,000.00 / 4)
CR Accumulated depreciation 500,000.00 (BS)

Year 3:
DT Revaluation surplus 1,200,000.00 (BS)
DT Accumulated depreciation 500,000.00 (BS)
DT Impairment expense 100,000.00 (IS)
CR Asset @ cost 1,800,000.00 (BS)
DT Depreciation 66,666.67 (IS) (200,000.00 / 3)
CR Accumulated depreciation 66,666.67 (BS)

I want to prove that it is very important for a valuator to valuate an item at the correct market value and/or that it is very important to show non-current assets at the correct value in a set of financial statements.

I don't know if I am understanding this correctly.

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