Revaluation in Oracle Fixed Assets

Revaluation in Oracle Fixed Assets

1. Introduction

Revaluation of fixed assets is the process of increasing or decreasing their carrying value in case of major changes in fair market value of the fixed asset. International Financial Reporting Standards (IFRS) require fixed assets to be initially recorded at cost but they allow two models for subsequent accounting for fixed assets, namely the cost model and the revaluation model.

Cost Model

In cost model the fixed assets are carried at their historical cost less accumulated depreciation and accumulated impairment losses. There is no upward adjustment to value due to changing circumstances.

Example:

ABC. Purchased a building worth 200,000 on January 1, 2008. It records the building using the following journal entry.

Equipment 200,000

Cash 200,000

The building has a useful life of 20 years and the company uses straight line depreciation. Yearly depreciation is hence 200,000/20 or 10,000. Accumulated depreciation as at December 31, 2010 is 10,000*3 or 30,000 and the carrying amount is 200,000 minus 30,000 which equals 170,000.

We see that the building remains at its historical cost and is periodically depreciated with no other upward adjustment to value.

Revaluation Model

In revaluation model an asset is initially recorded at cost but subsequently its carrying amount is increased to account for any appreciation in value. The difference between cost model and revaluation model is that revaluation model allows both downward and upward adjustment in value of an asset while cost model allows only downward adjustment due to impairment loss.

Example:

Consider the example of ABC Ltd. as quoted in case of cost model. Assume on December 31, 2010 the company intends to switch to revaluation model and carries out a revaluation exercise which estimates the fair value of the building to be 190,000 as at December 31, 2010. The carrying amount at the date is 170,000 and revalued amount is 190,000 so an upward adjustment of 20,000 is required to building account. It is recorded through the following journal entry:

Building 20,000

Revaluation Surplus 20,000

Oracle Assets allows you to periodically adjust the value of your Capitalized assets due to inflation or deflation, according to rates you enter. This process is known as revaluation.

Oracle Assets multiplies the asset cost by the revaluation rate you enter in the Mass Revaluations window to determine the adjustment to the Asset cost.

2. Revaluation Set ups:

2.1 Set up Revaluation Accounts

You must set up the following revaluation accounts before you can perform a revaluation:

– Revaluation Reserve & Revaluation Amortization Account for each Asset Category.

– Revaluation Reserve Retired Gain and Loss accounts in the Book Controls window.

Set up Revaluation Reserve and Amortization Account at Category level

Set up Revaluation Reserve Retired Gain & Loss Account at Book control.

2.2 Specify Default Revaluation Rules In Book Control

Allow revaluation and specify default revaluation rules for a book in the Book Controls window.

  • Revalue Accumulated Depreciation – If you do not revalue accumulated depreciation, Oracle Assets transfers the accumulated depreciation to the revaluation reserve account upon revaluation.
  • Revalue YTD Depreciation – Check this check box to revalue year-to-date depreciation.
  • Retire Revaluation Reserve – Check this check box to retire revaluation reserve.
  • Amortize Revaluation Reserve – Check this check box to allow revaluation reserve to be amortized in this book.
  • Revalue Fully Reserved Assets – Check this check box to revalue fully reserved assets.
  • Maximum Revaluations – Enter the maximum number of times an asset in this book can be revalued as fully reserved. If you leave this field blank, Oracle Assets does not limit the number of times you can revalue an asset as fully reserved.
  • Life Extension Factor – Enter the life extension factor for fully reserved assets in this book. Oracle Assets multiplies the life extension factor by the asset original life to determine the asset’s new, extended life.
  • Life Extension Ceiling – The life extension ceiling limits the depreciation adjustment when revaluing fully reserved assets.
  • Include Current Period Depreciation – Is implemented according to Russian legal requirements and this check box is available only in R12. When revaluation is done with “Include current period depreciation flag” checked system calculates and includes current open period depreciation in revaluation calculations. Any further transaction in same period will rollback revaluation

3. Steps for Performing Revaluation

The Mass Revaluation process includes the following steps:

  • Create Mass Revaluation Definition
  • Preview Revaluation
  • Run Revaluation
  • Optionally Review Revaluation

4. Restriction to Perform Revaluation

Revaluations are not processed for:

  • Fully retired assets
  • Assets with pending retirements
  • Group Assets

5. Restriction on Transaction after Revaluation

After revaluation of an asset, we will not be able perform

  • Amortized adjustment where amortization start date is prior to Revaluation period
  • Retirement of the asset where retirement date is prior to Revaluation period
  • Expense / Location transfer with a transfer date prior to Revaluation date

Tips: Since Oracle Assets does not Mass Copy Revaluations when you perform a revaluation in your corporate Book; also perform it in each tax book associated with that corporate book.

6. Calculation of Revaluation Reserve in Different Scenario’s

For various scenarios of Revaluation Reserve Calculation please refer Oracle support document ID 2018027.1 it is excellent document on Oracle Fixed Asset Revaluation. In fact this blog is extract from same white paper. I am putting it in to blog for my future reference and for others to get started with Fixed Asset Revaluation.

Following topics are covered in Fixed Asset Revaluation white paper.

  • Revalue Accumulated Depreciation
  • Revalue YTD & Accumulated Depreciation
  • Revalue only YTD Depreciation
  • Retired Revaluation Reserve (Accumulated Depreciation Not Revalued)
  • Amortizing Revaluation Reserve
  • Revalue YTD and Accumulated Depreciation and Amortize Revaluation Reserve
  • Revaluation of a Fully Reserved Asset and Revalue Accumulated Depreciation
  • Revaluation of a Fully Reserved Asset
  • Revaluation of a Fully Reserved Asset and Amortize the Revaluation Reserve
  • Retirement of a Revalued asset which has Amortize Revaluation Reserve Set to Yes
  • Transfer of a Revalued Asset
  • Include Current period Depreciation and Amortize Revaluation Reserve
  • Revaluation of a Fully Reserved asset with Include Current period Depreciation set to Yes
  • Revaluation of an Asset which already has adjustment in the same period
  • Adjustment on an asset which has revaluation in the same period
  • Adjustment on an asset which has revaluation in the same period and Revaluation is already accounted
  • Revaluation of an asset which is already impaired
  • Revaluation of an asset which is Depreciation on WDV method

7. Migration of Revaluation Reserve

When migrating the assets from a older version to a high version or from a legacy system to Oracle, if the assets is already revalued in legacy system, along with other details even the revaluation reserve needs to be migrated to Oracle assets.

Normally data migration is done using

a. Web adi

b. Addition API

c. Inserting the data in FA_mass_additions table

With regards to migrating revaluation reserve, if the data migration is done

  1. Using web adi then revaluation reserve needs to be migrated by populating below three    columns.

  1. If the migration is done using Addition API, then the revaluation reserve details needs to be populated in below arguments under INV_REC_TYPE

REVAL_AMORTIZATION_ BASIS

REVAL_YTD_DEPRN

REVAL_DEPRN_RESERVE

  1. If the data is migrated by directly inserting it in FA_mass_additions table via SQL or a staging table, then revaluation details needs to be populated under

REVAL_AMROTIZATION_BASIS

REVAL_RESERVE

YTD_REVAL_DEPRN_EXPENSE

When the asset is added via asset work bench also, Revaluation reserve details can be populated in asset work bench

Even for tax books, the data can be populated using fa_tax_interface tables.

8. Tables Involved / Impacted

Table Name

Usage

FA_MASS_REVALUATIONS

Shows the details or revaluation transactions performed irrespective of books

FA_MASS_REVALUATION_RULES

Shows the Detail / Parameters entered for Revaluation transaction for all the books

FA_MASS_REVAL_REP_ITF

Shows the details of changes made after revaluation like cost before revaluation, cost after revaluation etc.

FA_TRANSACTION_HEADERS

Shows the transaction type of revaluation

FA_ADJUSTMENTS

Shows the accounting entries that is generated by Revaluation

FA_BOOKS

Shows the cost, adjusted cost etc after revaluation. Also it shows the Revaluation amortization basis amount.

FA_DEPRN_DETAIL and FA_DEPRN_SUMMARY

These two tables holds the major information about revaluation like reval reserve amount, revaluation amortization basis, revaluation expenses etc.

FA_BOOK_CONTROLS

Shows the default Rules defined for revaluation transaction.

FA_CATEGORY_BOOKS

Shows the revaluation accounts which are getting hit.

Reference: Doc ID 2018027.1

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