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hello, can you please answer to this question below?
Required
Using the information below prepare the Statement of changes in equity for Gains Co for the year ended 31 December 20X9.
(a) Gains Co
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (EXTRACT)$’000
Profit before interest and tax 792
Finance income 24
Finance cost (10)
Profit before tax 806
Income tax expense (240)
PROFIT FOR THE YEAR 566
Other comprehensive income:
Gain on property revaluation 120
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 686(b) Non-current assets
(i) Assets held at cost were impaired by $25,000.
(ii) Freehold land and buildings were revalued to $500,000 (carrying amount $380,000).
(iii) A previously revalued asset was sold for $60,000.
Details of the revaluation are:
Carrying amount at revaluation $ 30,000
Revaluation $ 50,000
80,000
Depreciation (80,000 / 10) x 3). 24,000
56,000Gains Co has been following paragraph 41 of IAS 16 which allows a reserve transfer of the realised revaluation surplus (the difference between depreciation based on revalued amount and depreciation based on cost) as the asset is used to retained earnings.
Revaluations during the year related to land.(iv)
Details of investment properties are as follows:
Original cost $ 120,000
Revaluation surplus 40,000
Value at 1.1.20X9. 160,000The properties had a valuation on 31 December 20X9 of $110,000. Gains Co previously accounted for its investment properties by crediting gains to a revaluation surplus as allowed by local GAAP. Gains Co now wishes to apply the fair value model of IAS 40 which states that gains and losses should be accounted for in profit or loss. The elimination of the previous revaluation surplus is to be treated as a change in accounting policy in accordance with IAS 8. No adjustment has yet been made for the change in accounting policy or subsequent fall in value.
(c) Share capital
During the year the company had the following changes to its capital structure:
(i) An issue of 200,000 $1 ordinary bonus shares capitalising its share premium
(ii) An issue of 400,000 $1 ordinary shares (issue price $1.40 per share).(d) Equity
The carrying amount of equity at the start of the year was as follows:
Share capital $ 2,800,000
Share premium 1,150,000
Retained earnings 2,120,000
Revaluation surplus 750,000
total 6,820,000(e)Dividends
Dividends paid during the year amounted to $200,000.lots of thanks in advance
Hi,
I’m not here to answer entire question for you, such as the one above. I’m more than happy to answer specific queries on a question where you are having difficulty but you need to have attempted the question first.
If you let me know where you are struggling on the question above then I’ll help you out.
Thanks
I’m sorry for asking the entire question. It was because I don’t understand most of the question/answer and it doesn’t really show how it works from the materials from BPP.
from the answer paper, it says “change in accounting policy” on retained earnings is $40,000 and on revaluation surplus, ($40,000). I don’t know where $40,000 is from and why the amount that was added on retained earnings($40,000) is taken away from revaluation surplus.
and the same thing happens for “transfer to retained earnings” on retained earnings and revaluation surplus. the amount($35000)is added on retained earnings and the same amount is subtracted on revaluation surplus. Why is that?
thank you in advance, happy new year
Hi,
For your first query, we need to look at part (iv) of the information. Here we are told that previously any gains on IP have been taken to the revaluation surplus, following local accounting rules. The company now wants to adopt the IAS rules where we would take gains/loses to profit or loss and not to a revaluation surplus. We’re told that this is a change in accounting policy as per IAS 8 and so we need to restate the prior year figures. To do so we would need to remove the $40,000 from the revaluation surplus and take this to the retained earnings (profit or loss), hence the deduction from the revaluation surplus and increase in retained earnings brought forward.
Your other query will relate to the disposal of the PPE where we can then transfer the previous gains on revaluation held in the revaluations surplus to retained earnings.
Thanks
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