Tops Ltd. has decided to use the revaluation model for its factory building and

Question

Tops Ltd. has decided to use the revaluation model for its factory building and the cost model for its manufacturing equipment. Tops Ltd also owns additional land that it does not occupy but holds as an investment. Assume that at the end of 2010, the market values of each asset exceeded its original cost. On its Balance Sheet, the company categorises its non-current assets into PP & E and Investment Property.

1. You have been assigned the task of analysing how the increases in market value for the factory building, manufacturing equipment, and land held as an investment would be shown in Tops Ltd

Explanation / Answer

If the asset is an investment property, an increase in market value will be recognised in the Statement of Comprehensive income directly. The double entry will be: Dr Investment Property Cr Other income Thus, for the balance sheet, The investment property will increase in value. In the SOCI, the increase will be included in other income, and then profit and total comprehensive income will increases as well. Hope this helps!

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