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Hello Sir! Loving your lectures and hoping to pass the March F7 Exam.
My concern is regarding the (i) Non-current assets part of the question.
(i) The 15 year leasehold property was acquired on 1 April 2007 at cost $30 million. The company policy is to revalue the property at fair value each year end. The valuation in the trial balance on $25.2 million as at 31 march 2008 led to an impairment charge of $2.8 million which was reported in the statement of profit or loss and other comprehensive income of the previous year (i.e. year ended 31 March 2008). At 31 March 2009 the property was valued at $24.9 million.
I was sure that I was doing everything correctly when it came to the treatment of revaluation of assets, specifically speaking – the revaluation gain of $1.5 mil on Leasehold Property. Recognized it in other comprehensive income part of the statements and then when I checked the answer I was quite shocked as the whole surplus amount was credited to Cost of sales and the OCI part of the statement wasn’t even there in the answer sheet. I may have missed something. Now quoting the explanation they have given, which is totally not what they actually did.
“The 1.5 million revaluation surplus is credited to the statement of comprehensive income as this is the partial reversal of the 2.8 million impairment loss recognized in the statement of comprehensive income in the previous period.”
I don’t know what is right or wrong anymore.
What was the entry when the $2.8 impairment was recorded? There was no Revaluation Reserve to write it off against so it must have gone to cost of sales
And now it’s being reversed.
The reversal rules are that the amount reversed shall undo the impairment so it has to go to cost of sales
OK now?
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