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Hi, I’m not sure if I’m potentially missing something here wrt. revaluation reserve, I’ve been scratching my head trying to understand how they got 140 000.
Question:
CDE purchased a building on 1 January 20X1 at a cost of $450,000. At that date, the building had an estimated useful life of fifty years, with $50,000 estimated residual value. At 31 December 20X5, the building was revalued to $500,000, with no change in its total estimated useful life or residual value.Their revaluation reserve calculation:
• (500,000 – [(450,000 – $50,000)/50 x 45)]) = 140 000
(This just seems like the revalued amount less 45 years depreciation of the original value??)My understanding:
Depreciation Dec 01 – Dec 05: [450 000 – 50000]/50*5 = 40 000
Carry amount before revaluation = 410 000Dr Asset: 50 000
Dr Acc Depr: 40 000
Cr Rev Res / SOCI = 90 000Their calculation makes no sense to me, any assistance is appreciated.
Hello. Your workings are correct based on the question you have presented above.
Cost = $450K
Less Acc. Depn to Dec X5 = $40K
CV at Dec X5 = $410K
Revalued amount = $500K
Revaluation Surplus in OCI = $90K ($500K less $410K)Additionally, journals seem fine also:
Asset is shown on the SFP at its revalued amount so Dr $50K
Acc.Depn is eliminated so Dr $40K
Revaluation Surplus in OCI is Cr $90K
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