Gain on revaluation of investment property prior to transfer

Hi Tutor, I have a question relating to investment property which seemed to be confusing for me.I am gonna touch this case why I did not get it:(

Thanks in advance

Trial balance at 30 September 20X5

Investment properties at FV-20000
Land($5million) and buildings-at cost-35000
Plant and Equipment-at cost-58500

Accumulated depreciation at 1 October 20X4: Buildings-20000
Plant and Equipment -34500

Note:

On 1 October 20X4, Kandy owned two investment properties.The first property had a carrying amount of $15 million and was sold on 1 December 20X4 for $17 million.The disposal proceeds have been credited to a suspense account in the trial balance above.On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years.

The price of property has increased significantly in recent years and so the directors decided to revalue the land and buildings .The directors accepted the report of an independent surveyor who, on 1 October 20×4, valued the land at $8 million and the building at $39000 on that date.This revaluation specifically excludes the transferred investment property described above.The remaining life of these buildings at 1 October 20×4 was 15 years.

Plant and equipment is depreciated at 12,5% per annum using the reducing balance method

No depreciation charged to 30 September 20X5.

Solution:
Land is not depreciation so-5000
Revaluation surplus at 1 October 20X4 -3000
Revised Carrying value ———– 8000

Building-30000
AD at 1 october 20X4 (20000)
Carrying value at 1 October20X4=10000
Revaluation Surplus at 1 October 20X4–29000
Revised carrying value at 1 october 20X4=39000
Depreciation charge for the year (2600)
39000/15=2600
Carrying Value at 30 September 30=36400

Profit on disposal 15000-17000=2000

On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years. -Here it says transferred from investment property to owner-occupied that is why depreciated P/P/E? Did i get it right?

Investment property 20000-15000=5000

Land($5 million) and building—–35000

35000-20000(AD)=15000

Gain on revaluation of investment property prior to transfer (6000-5000)=1000

Here is 5000 is the value of Land or deducted from investment property’s 5000?
question arising from here that 5000 is derived deducted amount and which increased to 6000 and after 6000 became PPE and that is why depreciated? and this creates ”Gain on revaluation of investment property prior to transfer (6000-5000)=1000”

DID i get it right?

I totally agree with everything in your first post (although I still struggle with your “AD”!)

I’m not sure that I fully understand your second post and particularly the expression “after deduction accumulated depreciation” – there is no depreciation on the investment property

Otherwise, your logic and calculations appear to be correct

OK?

Ad means Accumulated Depreciation, just briefly wrote like that

Solution:
Land is not depreciation so-5000
Revaluation surplus at 1 October 20X4 -3000
Revised Carrying value ———– 8000

Building-30000
AD at 1 october 20X4 (20000)
Carrying value at 1 October20X4=10000
Revaluation Surplus at 1 October 20X4–29000
Revised carrying value at 1 october 20X4=39000
Depreciation charge for the year (2600)
39000/15=2600
Carrying Value at 30 September 30=36400

Profit on disposal 15000-17000=2000

Investment property 20000(trial balance above)-15000(land and building after deducting accumulated depreciation)=5000-this rest 5000 should be considered second investment property given investment property figure in the trial balance

Land($5 million) and building—–35000

35000-20000(Accumulated depreciation)=15000

Gain on revaluation of investment property prior to transfer (6000-5000)=1000

On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years.

In spite of 5000 increased to 6000, it says it is became owner-occupied, so 6000/20*9/12=225
6000-225=5775

Land-8000
Bulding-36400
transferred investment property-5775

Gain on revaluation of investment property prior to transfer (6000-5000)=1000-I should also take into consideration it in P/L preparation.

I took it from bpp test bank,page number 213-last mock exam 3
When i did it individually, i depreciated 6000 because of owner-occupied is said so it is no longer investment property or it does not meet the definition of investment property.Then when i checked the answer, i saw they also depreciated 6000.