Q13 Cavern – revaluation surplus and accumulated depreciation

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    ban123
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    Dear Mike,
    there is an inconsistency between the book and the solution (I think)

    in the text page 62, at the Crinckle Co example, the accumulated depreciation is driven out through “revaluation surplus” (debit 4 000 usd “accumulated depreciation” account, credit “rev surplus” account)

    in the Q13 Cavern explanation (page 124, practice book) the usd 2 million accumulated depreciation is not debited to “accumulated depr” account and not credited to “revaluation surplus” account.

    when revaluing, do we leave accumulated depreciation in “accumulated depreciation” account or cleare it through “revaluation surplus” account?

    Thanks


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    MikeLittle
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    in the Q13 Cavern explanation (page 124, practice book) the usd 2 million accumulated depreciation is not debited to “accumulated depr” account and not credited to “revaluation surplus” account.

    WOW! If there is in fact a revaluation ( and I cannot remember the details of the question ) then it sounds to me that I should have Debited Accumulated Depreciation Account and Credited the Revaluation Reserve.

    If I remember, I’ll check the question tomorrow


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    jojo
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    Hope this example will help you to clear your concept;

    Example: An asset original cost was 10,000 and useful life of 5 years. The asset was revalued after 2 years to 12,000 and there is no change in the useful life of an asset.
    Original cost 10,000
    Carrying value 6,000
    Revalued value 12,000
    Useful life 5 years

    Revaluation entry:
    Debit – Acc. Depreciation – 4,000
    Credit – Asset – 4,000
    (To eliminate accumulated depreciation under “netting” approach)

    Debit – Asset – 6,000
    Credit – Revaluation surplus – 6.000
    (then increasing the asset value to fair value)

    Depreciation entry first year after revaluation:
    Depreciation per year after revaluation – 12,000/3 (remaining useful life i.e. 5-2=3) = 4,000 per annum
    (Depreciation charged is calculated by dividing the revalued amount by the remaining useful life)

    Now at year end we have to charge the depreciation on revalued amount, the following are the two entries;
    Debit – Depreciation Expense – 4,000
    Credit – Accumulated Depreciation – 4,000

    Now calculate the depreciation on original value before revaluation as if no revaluation has been done.
    The difference between this depreciation charge and that after revaluation depreciation charged calculated above should be transferred from revaluation surplus to retained earnings. So second entry will be;
    Debit – Revaluation surplus – 2,000
    Credit – Retained earnings – 2,000


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    ban123
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    sorry my bad, the fair value of the building should be 34.8 million, then with JoJo’s approach credit the building 2 million, its cost is now goes from 36 million to 34 million, and the revaluation is realy 0.8 million, so the practice solution is correct

    Thanks for both of you


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    MikeLittle
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    I’m sorry, but I don’t like Jojo’s entry of Debit Accumulated Depreciation and Credit the Asset account. I teach my students to debit Accumulated Depreciation and credit the Revaluation Reserve. If there is still a further amount to revalue upwards ie more than the Accumulated Depreciation, then Dr the Asset and Cr the Revaluation Reserve with that remaining amount


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    c0712
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    How is the retained earnings of 14,390 arrived at, with the b/f figure of 12,100, and pat 20,790? Thanks!


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    MikeLittle
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    Is there an 18,500 dividend anywhere?


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    c0712
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    Yes, there is. Sorry and thank you!


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    MikeLittle
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    Oh dear!


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    claudia1
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    Hi Mike. I am having some difficulty in choosing which workings to show and in which order….especially with consolidation. Please advise!!!!


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    MikeLittle
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    Hi Claudia

    W1 Group Structure, W2 Goodwill, then PUPs, W3 Consolidated Retained Earnings, W4A nci on the SoFP, W4B nci interest in the year’s profits, W5A Investment in Associate, W5B Share of Associate’s profits this year

    What’s the problem?

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