Depreciation calculation

On revalued assets

3.36 Depreciation is calculated on a quarterly basis, starting in the quarter following the one in which the asset became available for use.

3.37 UK GAAP is clear that all the depreciation chargeable on revalued assets must pass through the revenue statement, i.e. OCS. This means that that the extra depreciation incurred because an asset has been indexed or revalued upwards is included in the depreciation charge for the year.

3.38 From 2000-2001 however, PCTs should release an amount from the revaluation reserve to the General Fund in respect of this excess depreciation over historic cost. This transfer avoids the anomaly of the revaluation reserve remaining in perpetuity after an asset has become fully depreciated. It is also justified as it recognises a realised profit in Companies Act terms.

3.39 The following example illustrates the transfers required from the revaluation reserve to the General Fund in respect of a revalued asset.

Example: Treatment of Depreciation in the Balance Sheet (pre 2000-01 NHS treatment)

Fixed Assets - Asset purchased on 31 March for 100, written off over 5 years, indexⁿ of 10% pa.

	Year 1	Year 2	Year 3	Year 4	Year 5
Gross Cost
Opening	100	110	121	133	146
Indexation	10	11	13	13	14
Closing	110	121	*133	146	160
Accum. Depr.
Opening		22	48	79	116
Depr.	22	24	26	29	32
Indexation		2	5	8	12
Closing	22	48	79	116	160
NBV	88	73	54	30	0

Depreciation charged to revenue account


	Year 1	Year 2	Year 3	Year 4	Year 5
Depr.	(22)	(24)	(26)	(29)	(32)

Revaluation Reserve (before adjustment)


	Year 1	Year 2	Year 3	Year 4	Year 5
Opening	0	10	19	26	31
Indexation (gross cost)	10	11	13	13	14
Indexation (ac. Depr		(2)	(5)	(8)	(12)
Closing	10	19	*26	31	33

* rounding
It can be seen that this treatment leaves a balance on the revaluation reserve when the asset has been fully depreciated.
Treatment from 2000-01

Depreciation charged on revalued amounts can be calculated:


	Year 1	Year 2	Year 3	Year 4	Year 5
Depr.	22	24	26	29	32
Depr on historic cost basis	20	20	20	20	20
Excess over HC depr	2	4	6	9	12

Applying the adjustment to the revaluation reserve:


	Year 1	Year 2	Year 3	Year 4	Year 5
Opening Balance	0	8	13	14	10
Net Indexation	10	9	7	5	2
Depreciation ( Transfer to General Fund)	(2)	(4)	(6)	(9)	(12)
Closing Balance	8	13	14	10	0

In year 2 the book keeping entries would be:

Dr	9 Fixed assets indexation		To record indexation
Cr	9 Revaluation reserve
Dr	24 OCS - deprecn for the year		Depreciation charge for the year
Cr	24 Fixed assets
Dr	4 Revaluation reserve		In respect of depreciation charge in excess of that on HC
Cr	4 General Fund

On the disposal of revalued assets, profit and loss is the difference between the sale proceeds and the carrying amount (i.e. at the revaluation value). Any remaining balance on the revaluation reserve should be transferred to the General Fund.

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