Hi guys,
Please help me to understand this example from CFA lesson. Thank you.
The following information pertains to Khaleej Company (a hypothetical company). A building owned by Khaleej Company was originally purchased for €1,000,000 on 1 January 20x1. For accounting purposes, buildings are depreciated at 5 percent a year on a straight-line basis, and depreciation for tax purposes is 10 percent a year on a straight-line basis. On the first day of 20x3, the building is revalued at €1,200,000. It is estimated that the remaining useful life of the building from the date of revaluation is 20 years. Important : For tax purposes the revaluation of the building is not recognized.
Solutions:
… DTL20x3= €56,000
In the future, at the end of each year, an amount equal to the depreciation as a result of the revaluation minus the deferred tax effect will be transferred from the revaluation reserve to retained earnings. In 20x3 this will amount to a portion of depreciation resulting from the revaluation, €15,000 (€300,000 ÷ 20), minus the deferred tax effect of €6,000 (€15,000 × 40%), thus €9,000.
- My question: while I agree with DTL 20x3, I dont understand the amount that would be transferred to retained earnings.