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Dear Tutor:
Banter Co purchased an office building on 1 January 20X1.The building cost was $1,600,000and this was depreciated by the straight line method at 2% per year, assuming a 50-yearlife and nil residual value. The building was revalued to $2,250,000 on 1 January 20X6.Theuseful life was not revised.The excess depreciation charge will be transferred from the revaluation surplus to retained earnings each year. The company’s financial year ends on31 December.
What is the balance on the revaluation surplus at 31 December 20X6?The revaluation surplus is (2250000-1600000)+1600000*2%*5-18000=792000,I can’t understand why it plus the accumulate depreciation($160000)?
Although $792,000 is the correct answer, the workings you have typed ate not correct (and do not arrive at 792,000 anyway 🙂 )
The NPV at the date of the revaluation is 1,600 – (5 x 2% x 1,600) = $1,440.
It is revalued to $2,250, giving a surplus of $810 at the date of revaluation.The depreciation for one year on the revalued amount is 2,250/45 = $50.
The depreciation on the original cost was 2% x 1,600 = $32.Therefore the excess depreciation is the difference of $18, and therefore the revaluation surplus at 31 December 20X6 is 810 -18 = $792.
And there is another question:
Company J’s head office building had a carrying amount of $400,000 at 1 January 20X4and 30 years useful life remaining. It was revalued on that date to $600,000 with no change to the useful life.
On 1 January 20X6, following a property slump, it was sold for $450,000.
What amount (if any) should be charged against profit or loss as loss on disposal?
$150,000
$110,000
$50,000
$Nil
why it is nil?
Thank you for your answer,tutor.This is not really relevant until Paper FR (not for Paper FA).
However when the asset is sold, profit or loss is calculated based on the carrying value if it had not been revalued. Here is was sold for more than the carrying value had it not been revalued and so there is no loss. The balance on the revaluation reserve is then transferred to retained earnings.
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