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PPE – Financial Statements and PPE – ACCA Financial Reporting (FR)

VIVA

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      • 39000 is the revalued amount of the building at the start of the year (1 October 2013) and not the carrying amount.
        the carrying amount is 35000 (55000-20000).
        we cant use 50000 (without land) to depreciate because the building was revalued to 39000 hence 39000/15.
        looking back at examples 1 and 2 might give you an idea.

  3. Financial Accounting was never my strong point throughout my studies but today I managed to CORRECTLY answer this question with no trouble at all.
    I look forward to all the other lecturers as we go through the course, but so far Mr Chris’s notes and lectures have been 100% helpful and easy to understand.
    Thank you for your time sir =)

  4. Hi Chris, can I please ask why you have SPL and OCI in one column in your answer?

    Surely your answer should have 3 columns in total (to represent the 3 financial statements in which the data is presented on 1.SFP 2.SPL 3.Statement of Comprehensive Income. (as OCI sits on the SOCI not on the P&L) Thanks in advance.

  7. Hie
    . May you please assist me on the Major inspection cost IAS16.
    Company A acquired a machine costing $210 000 on jan 2007.it had an estimated life span of 12 years. The estimated inspectiom which was to be dobe for 3 years was $30000.0n 1 jan 2010 the machine was subject to a $45 000 inspectiom cost. The company uses straight line method.
    Give the journal entries for company A, for the years 2007, 31 Dec and 2010, 31 Dec.

  9. Hi,

    The answer to this question (Example 4) in the notes does not include the Gain on Revaluation/Revaluation Reserve in the way that Example 1 and the video lecture answer both do – as part of the extracts we are preparing.

    Is there a reason the Revaluation Reserve/Gain on Revaluation might not be shown as part of the answer in the notes?

    Many thanks,

    Kyle

  11. Hello Chris, me my concern is one, why didnt we add the historical cost of land of 5m to make it 40m then deduct it from 47000 to get 7000 but instead took only the historical value of Buildings less Acc depreciation and subtracted it from the Total revaluation amount of both land and buildings to get 12000?

    • This is because this question has specifically asked us to not include it. If you were to read the last line of the first para under ‘Non-current Assets:’ it says that

      “Kandy does not make an annual transfer to retained profits to reflect the realization of the revaluation gain.”

      In the real world, whether or not the excess depreciation is transferred to retained earnings is a matter of company policy. In the ACCA exams though, unless they ask us specifically not to, we should always transfer the excess depreciation from the revaluation reserve(surplus) to the retained earnings.

      Dr. Revalutation Reserve
      Cr. Retained Earnings

  14. Why didn’t we reduce our balance or revaluation reserve of 12000 with the difference of our historic and current depreciation? Or am I missing something ?
    Thank you

  15. Hi Sir,

    If it was ask to transfer to retain earnings then:

    1. would the surplus on revaluation be $12000-2600=9400 and
    retained earning to 2600.

    2. oci would then be 9400 ?

    Thank you,
    Avinash.

  16. hi chris,
    under the historic cost, you deducted acc.depreciation (20000) from cost of land and building (55000) to give the CV @y/e sept. 13
    my question is (1). why is the cost of land (5million) not deducted from total cost (55million) since land is not depreciable. i want to believe that the acc.depn is only related to the building.

    (2). why not use the CV @y/e sept ’13 (35million according to your workings) to calculate depreciation instead of the revalued amount (39million).

    thanks

    • Hi,

      The calculation looks at a combined revaluation of the land and buildings. So the CV at Sept’13 is that of both the land and buildings, and the accumulated depreciation has only been calculated on the cost of the building.

      Depreciation is calculated on the revalued amount, as per IAS 16.

      Thanks

  17. Hi Chris, I have one doubt. In the question it says kandy doesn’t make annual transfer to retained profits to reflect the realisation of the revaluation gain so my question here is why did you take the amount of revaluation gain on Statement of Financial Position and not considered anything for gain on depreciation?

    • Hi,

      It would usually say within a question if it does or doesn’t make the transfer, but it is best practice to do so. Therefore, if it does not say then I’d still make the transfer to go along with best practice.

      Thanks

      • Hello, in the above case if we were to make the transfer to retained profits, for that we need to know the original useful life of the building so as to calculate the original depreciation to find the excess depreciation.
        Can you please let me know if this is correct?

        Many thanks,
        Jatin

  18. Dear Sir,

    I have a question if any one can answer with references.

    X company with 2000 staff (Taxi drivers) has own staff accommodation building (Fixed Asset) and never charged rent to its p&l.

    Now management of X company want to move staff accommodation to another asset management (AM) company and AM company will charge rent to company X going forward.

    X company want to do this so that they can identify how much revenue the asset is generating.

    Want to know if this is allowed in accounting as this is a operating asset, if yes please clarify how with reference.

    Regards

    • Hi,

      I’m not too sure how this is relevant to the video above on PPE, and I’m not too sure that it relates to the FR exam. It looks to me like you’re seeking some form of business advice and we aren’t here to provide it, sorry.

      Thanks

  19. Hi Chris,
    I think I am getting hung up on the distinction between Revaluation Reserve in SOFP/Equity and in SPLOCI. Specifically its technical use when posting journals. I understood:

    DB – Non-Current Assets – increase with diff. revalued amount – actual cost
    DB – Accummulated Depr – reverse depr. to date
    CR – Revaluation Reserve (Equity or OCI?) – increase in value + acc. depr.

    IF we are instructed to adjust shareholder’s wealth by depr. increase:

    DB – Revaluation Reserve (Equity or OCI?) – depr. increase since reval.
    CR – Retained Earnings – depr. increase since reval.

    I left depreciation journal out as it’s per usual only with the increased rate.

    I think I am getting confused because I see you presenting the reserve and gain separately in the results of your workings.

    Hope you understand my question and it makes sense?

    Thanks,
    Anja

    • Hi,

      When we make the initial revaluation gain we record the gain in the revaluation reserve/surplus. The gain is presented through OCI, and then this gain is added to the opening revaluation reserve in the SOCIE.

      For the excess depreciation your journal is correct.

      Thanks

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