Property purchased for ?$3 million was revalued on 1 July 2017 to ?$4.5 million.
ID: 2527784 • Letter: P
Question
Property purchased for ?$3 million was revalued on 1 July 2017 to ?$4.5 million. Accumulated depreciation at the time of revaluation was $ 500 000. The property? hadn't previously been revalued. At the time of the? revaluation, the property was expected to have a further useful life of 25 years with no residual value. On 1 July 2021 the property was again? revalued, to ?$3.3 million. Requirement Show the journal entries to? record: (a) the initial? revaluation, (b) depreciation for each of the years ended 30 June 2018 to 2021 and? (c) the revaluation at 30 June 2021. ?(d) Use the student to show work button. Show your workings for? item? (a)? (b) and? (c) Justify your workings using the appropriate accounting standards
Explanation / Answer
Question (a)
On 1 July 2017 the Carrying Value of the asset is $3M - $0.5M = $2.5M
The revalued amount is $4.5M. Hence a difference of $4.5M - $2.5M = $2M needs to be accounted for.
As per IAS 16, revaluation surplues is not 'normal gain' and should be credited to Other Comprehensive income account:
Question (b)
The deprecation after a revaluation should be based on the revalued amount. Hence $4.5M should be depreciated over 25 years.
Annual Depreciation = 4.5/25 = 0.18M
Hence for the 4 years we would pass the following Journal entries:
Question (c)
At the time of the second revaluation the value of the property is $4.5M - 4 years of Depreciation
= $4.5M - (0.18MX4) = $3.78M
Hence there is a Revaluation loss of $3.78 - $3.3M = $0.48M. The entry to be recorded for this revaluation is:
Debit Credit 01-Jul-17 Property 2M Revaluation Surplus 2M 01-Jul-17 Revaluation Surplus 2M Other Comprehensive Income 2MRelated Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.