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Below i have reproduced part of a BPP question: Gains. the question asks us to prepare SOCIE.
“Investment Property details:
Original cost —- 120,000
Reval. surplus — 40,000
Value at 1.1.x9– 160,000On 31 Dec x9, the properies had a value of 110,000. Previously, investment properties were accounted for by crediting gains to reval surplus as allowed by local GAAP. Now, they wish to apply the fair value model of IAS 40 which states that the gains and losses shd be accounted for in profit or loss. the elimination of the previous revaluation surplus is to be treated as a change in accounting policy in accordance with IAS 8. No adjustment has yet been made for the change in accounting policy or subsequent fall in value”
the answer shows:
——————————–retained Earnings ———-Reval surplus
Balance at 1.1.x9———-2120——————————750Change in Accounting
Policy ————————–40———————————(40)
Restated Balance ——–2160—————————-710questions:
the concept of change in accounting policy is not very clear
the fact that the balance is being restated on 1.1, this means that change in policy occurs on 1.1? why is that? why not do it at 31.12?
is the change always shown from the beginning of the year?thanks in advance
When a company changes an accounting policy, standards require figures to be adjusted to reflect the situation as though that new policy had always been applied.
That means that not only do we change the policy for this year and into the future but that also any relevant figures from the past are amended as appropriate
Understood?
yes!…thank u!
i do have a follow up on the same question, but this part is not related to intangible assets:
“a previously revalued asset was sold for 60,000. details of the valuations are as follows:
book value at revaluation ….. 30,000
revaluation ……………………….. 50,000
…………………………………………..80,000
dep (80,000/10)x3………………(24,000)
………………………………………….56,000the co has been following para 41 of IAS 16 which allows a reserve transfer of the realized revaluation surplus as the asset is used to retained earnings”
we are supposed to show this in SOCIE.
so, the profits/loss on the disposal will add to the profit. right? and the profit is 4000 (60-56). so my retained earnings increases by 4000.
the retained earnings also increases by 15,000 (the difference between new and old dep .. this figure matches the answer)
therefore, the total increase in retained earnings is 19k and decrease in the reval surplus is 15k
this is where i get stuck.
the answer simply states the following:
revaluation surplus……………………. 50,000
less transfer to retained earnings=(15,000)
…………………………………………………..35,000and in the answer it is shown like 35 and (35) under retained earnings and reval surplus respectively.
why isnt the profit on disposal being taken into account?
i dont quite get why just 35 is being played with?
Profit on disposal will be within the statement of profit or loss. The revaluation reserve transfer is within comprehensive income and SOCIEty
ah.. ok.. i get it now .. but…..
they gave the following SOPL
profit before interest and tx …..792
finance income ……………………..24
finance cost ………………………….(10)
profit before tax ……………………806
income tax …………………………..(240)
profit for the year …………………566
OCI ……………………………………..120
comprehensive income ………..686what u r saying is that the profit of 4k on disposal is already part of this given statement?
it simply was not obvious to me that the profit wd already be included. is there some rule of thumb to figure this out? that is…when is it safe to assume that sopl already has some figures but not others?
If the question says that an asset was disposed of during the year and a profit made on sale of $4,000, it must have been recorded somewhere! Can you see anywhere else where that transaction’s profit is separately shown? No? Then it must already be included within the figure (in your example) for “Profit before interest and tax”
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