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hello,
on 31.05 x7 , glove acquired plant with a FV of $6m. In exchange for the plant , the supplier received land which was currently not in use, from glove. The land had a CV of $4m and an open market value of $7m. In the FS at 31.05.x7 , glove had made a transfer of $4m from land to plant in respect of this transaction.Can you please sir explain the accounting treatment for this adjustment?
(the reference is BPP exam kit no 36 GLOVE ( june 07)Is it not simply: Dr Property plant and equipment 2 million and
Cr Statement of Income with 2 million profit on the disposal of the land
Could you please explain in more details by the use of debit and credit from recognition of the PPE to the derecognition of the land?
If this can help you in the explanation, this is the answer given by the examiner :
$
FV of land 7
CV of land (4)
adjustment 3DEBIT PPE 3m
CREDIT RETAINED EARNINGs 3mSidenote given : The cost of plant should be measured at the FV of the asset given up rather than the carrying value. An adjustment must be made to the value of the plant and to Retained earnings.
and under which heading does the 3m goes in p/l ? in gain from property revaluation in oci? or is it a gain on disposal?
Plant is understated – we have recorded 4m but have given up an asset with a value of 7m to do it
The increase from cv to disposal value of 3m is a gain to be recognised on disposal.
The gain is through Statement of Income Profit on Disposal rather than a revaluation gain
OK?
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