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Dee1202.
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- May 16, 2025 at 8:25 am #717289
I had a doubt in the following question:
“Hare Co revalued its property on 1 April 20X1 to $20m ($8m of which related to land). The property originally cost $10m ($2m of which is related to land) 10 years ago. The original useful life of 40 years for the buildings is unchanged. Hare Co’s policy is to make a transfer to retained earnings in respect of excess depreciation.”
In this Question we need pass journal entries for the same. Now, what I know is that there are two methods that I can proceed with proportionate readjustment or elimination method. I used the latter because I find it slightly easier. Journal entries created by me are as follows:
Dr. Land A/c 6,000,000
Cr. Revaluation Surplus A/c 6,000,000Dr. Accumulated Dep A/c 2,000,000
Cr. PPE A/c 2,000,000Dr. Building A/c 4,000,000
Cr. Revaluation Surplus A/c 4,000,000Dr. Depreciation A/c 400,000
Cr. Accumulated Dep A/c 400,000Dr. Revaluation Surplus A/c 200,000
Cr. Retained Earnings A/c 200,000The journal created in the solution for revaluation on the property is:
Dr. PPE A/c 10,000,000
Dr. Accumulated Dep A/c 2,000,000
Cr. Revaluation Surplus A/c 12,000,000Could someone help me out here, I just wanted a second opinion on, if the way I have accounted for is correct? (As the revaluation surplus that I will record under OCI will be 10,000,000 but what they have recorded is 12,000,000)
May 18, 2025 at 6:08 pm #717338Hi,
Most of what you have done looks correct. I think though that there is a slight error on the second journal entry where the CR should be to the revaluation surplus and not PPE. If you then net off the first three journals you will then have the same as what is in the answer.
Thanks.
May 18, 2025 at 6:08 pm #717339Hi,
Most of what you have done looks correct. I think though that there is a slight error on the second journal entry where the CR should be to the revaluation surplus and not PPE. If you then net off the first three journals you will then have the same as what is in the answer.
Thanks.
May 19, 2025 at 9:44 am #717351Got it! So, this is how it looks:
What I have done in the second journal:
Dr. Accumulated Dep A/c (This reverses the Accumulated Dep as per the Elimination method)
Cr. PPE A/c (This reduces the Carrying value of the asset further)What should have been done:
Dr. Accumulated Dep A/c (This reverses the Accumulated Dep as per the Elimination method and takes the carrying value of PPE to its original amount which was 8 mil) – 2 mil
Cr. Revaluation Surplus A/c (This transfers this to revaluation account) – 2 milDr. PPE A/c (Increases the value of PPE by the diff between 12 mil and 8 mil) – 4 mil
Cr. Revaluation Surplus A/c (This gets transferred to the revaluation surplus A/c) – 4 milNow since the Revaluation Surplus = (Overall property FV – Overall property carrying value) = 20mil – 8 mil = 12 mil
The Balance on Revaluation Surplus Account will now also be equal to 12 mil.
Thank a lot!
Do let me know if my understanding is in any way incorrect.
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