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Hello all,
I need some assistance on the below question:
Dosh Co’s transactions and results for the period to 31 Dec 20×9 include:
Surplus on property 1 revaluation $14MM
Deficit on property 2 revaluation ($7MM)Property 2 had previously been revalued upward by $4MM. Dosch Co does not make annual transfers from revaluation surplus to retained earnings
What amount would be credited to the revaluation surplus for the period?
Now the correct answer is: $10MM
With the explanation stating that the other $3MM deficit on property 2 to be charged to P&L
How did they arrive at this? Why is the deficit property 2 cited as only ($4MM)?
I suspected it was $14MM – $7MM + 4MM but this is incorrect, please can you explain the rationale behind the answer?Thank you
Hi,
The entire gain on property one of $14m goes through OCI and the revaluation surplus.
The reduction in value of property two of $7m goes through both OCI and profit or loss. As there was a previous gain of $4m that would have gone through OCI then $4m of the $7m reduction in value will go through OCI and the revaluation surplus. This then means that the remaining $3m will go through profit or loss.
If we combine the two movements through OCI on both properties ($14m gain and $4m loss) then we have a net impact of $10,.
Hope that clears it all up.
Thanks
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