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Rs. Rs.
Decommissioning liability Dr. 5,000
To Revaluation surplus 5,000

As at March 31, 2019, the entity revalued its asset at Rs. 1,07,000, which is net of an allowance of Rs. 7,200
for the reduced decommissioning obligation that should be recognised as a separate liability. The valuation of
the asset for financial reporting purposes, before deducting this allowance, is therefore Rs. 1,14,200. The
following additional journal entry is needed:

Notes:
Rs. Rs.
Accumulated depreciation (1) Dr. 3,420
To Asset at valuation 3,420

Revaluation surplus (2) Dr. 8,980
To Asset at valuation (3) 8,980

1) Eliminating accumulated depreciation of Rs. 3,420 in accordance with the entity‖s accounting policy.
2) The debit is to revaluation surplus because the deficit arising on the revaluation does not exceed the credit

balance existing in the revaluation surplus in respect of the asset.
3) Previous valuation (before allowance for decommissioning costs) Rs. 1,26,600, less cumulative depreciation
Rs. 3,420, less new valuation (before allowance for decommissioning costs) Rs. 1,14,200.

Following this valuation, the amounts included in the balance sheet are:
Asset at valuation 1,14,200
Accumulated depreciation Nil
Decommissioning liability (7,200)
Net assets 1,07,000
Retained earnings (1) (14,620)

Revaluation surplus (2) 11,620

Notes:
(1) Rs. 10,600 at March 31, 2018, plus depreciation expense of Rs. 3,420 and discount expense of Rs. 600 =
Rs. 14,620.

(2) Rs. 15,600 at March 31, 2018, plus Rs. 5,000 arising on the decrease in the liability, less Rs. 8,980 deficit
on revaluation = Rs. 11,620. [15,600 + 5,000 - 8,980]

Q9. (May 20 – 12 Marks)

Flywing Airways Ltd is a company which manufactures aircraft parts and engines and sells them to large
multinational companies like Boeing and Airbus Industries.

On 1 April 20X1, the company began the construction of a new production line in its aircraft parts

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