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Banter Co purchased an office building on 1 January 20X1. The building cost was $1,600,000 and this was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual value. The building was re-valued to $2,250,000 on 1 January 20X6. The useful life was not revised. The company’s financial year ends on 31 December.
What is the balance on the revaluation reserve at 31 December 20X6?A $650,000
B $792,000
C $797,000
D $810,000
Sir i think the correct answer is D.The deprecation is 1600,000*2%=32000*5=160000 because 5
years has passed so the revaluation surplus is 1600,000-160,000=144,0000 now 2250000-1440000=810000 sir but the bpp kit shows the answer is B how.As at the date of the revaluation (1 January 20X6) the revaluation surplus was indeed $810,000.
However the question asks what the balance will be as at 31 December 20X6. The depreciation charge for 20X6 is $2,250,000/45 = $50,000.
The deprecation on the original cost would have been 2% of 1,600,000 =$32,000.As I explain in my free lectures on this, the company can then transfer the excess of $18,000 from the revaluation reserve to retained earnings (to make it distributable as dividend).
The results in the revaluation surplus at the end of the year as being 810,000 – 18,000 = $792,000.
thank you sir i am stuck with that from 2 days and you cleared in just 2 min.
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