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In a December 2008 question (5), the question talks of an upgrade to a piece of equipment. They have asked to prepare (among other things) the SoFP following the upgrade.
Question paper: https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/f7int_2008_dec_q.pdf
Answer paper: https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/f7int_2008_dec_a.pdfWhy have they revalued the asset to be £670,000? I would have thought that they’d increment the valuation by the amount spent on the upgrade (£920,000 + £200,000), and why has the accumulated depreciation not been incremented, but rather restated?
In my working, I said that the valuation should be £1,120,000 and the accumulated depreciation is £569,000 (which effectively give net asset value of £551,000; the same as the model answer).
Is doing it the way I have considered wrong? Can you loose marks for such things?
Upon the event of a revaluation, the first debit entry should be to eliminate any accumulated depreciation on that asset – effectively we are saying that that depreciation has been over-provided.
If the revaluation surplus exceeds the accumulated depreciation, then the excess will be debited to the asset account
Yes, you’ll get the same answer because the credit to the revaluation reserve dictates how much you should be debiting but that first debit goes to Accumulated Depreciation and only when that has been reduced to zero do we start to add the surplus to the asset account
Ok?
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