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This is the Question..(3.6 question 2(c) June 2007)
Wader is reviewing the accounting treatment of its buildings. The company uses the ‘revaluation model’ for its buildings. The buildings had originally cost $10 million on 1 June 2005 and had a useful economic life of 20 years. They are being depreciated on a straight line basis to a nil residual value. The buildings were revalued downwards on 31 May 2006 to $8 million which was the buildings’ recoverable amount. At 31 May 2007 the value of the buildings had risen to $11 million which is to be included in the financial statements. The company is unsure how to treat the above events.
Why the ‘Reversal of impairment loss to profit or loss’ is $1.42m, not $1.5m?
The answer given was it is subject to depreciation. But why we need to charged a depreciation for a REVALUATION LOSS?
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