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IAS 16 – Property revaluation question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › IAS 16 – Property revaluation question

  • This topic has 3 replies, 2 voices, and was last updated 8 hours ago by Dee1202.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 16, 2025 at 8:25 am #717289
    Dee1202
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    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 6,000,000

    Dr. Accumulated Dep A/c 2,000,000
    Cr. PPE A/c 2,000,000

    Dr. Building A/c 4,000,000
    Cr. Revaluation Surplus A/c 4,000,000

    Dr. Depreciation A/c 400,000
    Cr. Accumulated Dep A/c 400,000

    Dr. Revaluation Surplus A/c 200,000
    Cr. Retained Earnings A/c 200,000

    The 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 12,000,000

    Could 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 #717338
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    Hi,

    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 #717339
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7149
    • ☆☆☆☆☆

    Hi,

    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 #717351
    Dee1202
    Participant
    • Topics: 1
    • Replies: 1
    • ☆

    Got 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 mil

    Dr. 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 mil

    Now 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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