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I have a doubt for the MCQ below:
Qns:
Moffat adopted the IAS 16 revaluation model on 31 Dec 20X5. On this date the historical cost carrying amount of its property was $120,000 and it’s fair value was $460,000. The property had a remaining life of 20 years. At 31 dec 20X6 the fair value of the property had fallen to $430,000.What the balance on the revaluation reserve at 31 dec 20X6?
A: $310k
B:$316k
C:$323k
D:$340kThe solution: $120k+340k=460k-(dep:$23k)=$437k-$7k=$430k
So, the balance on the revaluation reserve is $340k-$7k=$270k.
But not within the provided answer.
So, how can I solve this qns ?“So, the balance on the revaluation reserve is $340k-$7k = $270k.” ?????
Do you want to recheck your mathematics? $340 – $7 = $333!
According to my calculations, $333 should be the answer. Does the text book not explain how they have arrived at whatever figure they have given as the answer? What answer is shown in the book?
The answer is derived from deducting excess depreciation ($340k/20) and revaluation loss ($7k).
(i.e 340k-17k-7k=316k )And I dun understand why they find the excess depreciation by using revaluation reserve divide with the remaining life?.
Hi – ok, that’s easy! If we had not revalued, the depreciation would have been $6 ($120 / 20)
As a result of the revaluation, the depreciation has moved to $23 ($460 / 20) and that’s an increase of $17
It is good practice to transfer from Revaluation Reserve an amount equal to the excess depreciation caused by the revaluation from Revaluation Reserve to Retained Earnings
So, from a Revaluation Reserve amount of $340, we need to deduct the transfer of this excess depreciation to Retained Earnings ($17) and then deduct also the reversal of the revaluation when the fair value drops to $430,000
Does the question indicate that the company DOES carry out this annual transfer from Revaluation Reserve to Retained Earnings? If so, that’s an important piece of information that you failed to give me!
Is that ok now?
Yeah, thank you!
And Well, no more information given in the qns. I have copied exactly same from the book.
Ok, but it’s not a requirement to make this transfer – it’s merely a recommendation
Correct Answer is B=316K
@ 31 Dec 20X5
C.V=120000
Fair Value= 460000
Revaluation Gain= 340000
Remaining useful life= 20 years@ 31 Dec 20X6
Remaining useful life is 19 years
so C.V=460000
Depriciation for the year=24210 (460000/19)
Excessive Depriciation= 24210- (120000/20)= 18210
C.V=460000-24210= 435790
Revaluation loss= 430000-435790= -5790Revaluation Reseves
Revaluation Gain:@31 Dec20X5 340000
Excessive Depricition for 20X6= (18210)
Revaluation loss @ 31 Dec20X6= (5790)
Balance as @ 31 Dec 20X6= 316000“@ 31 Dec 20X6
Remaining useful life is 19 years”For the year that we are looking at, that is the year ended 31 December, 20X6 there were 20 years remaining useful life
At the start of X6 the directors said “This machine of ours has a remaining useful life of 20 years. So let’s write it off over 20 years”
They didn’t say “By the end of this year there will only be 19 years of life left so let’s write it off over 19 years”
You need to sort this out in your head – it’s a common visitor to F7
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