Practice Question Klopp
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MY issue on the solution is that you did not account for the accumulated depreciation for 5 years, so that you have a carrying value of $5m and a reserve of R$1m. This is based on the approach from previous lessons you gave Chris, please clarify?
He did make a mistake there. Refer to the answer in the back of the notes, its written there.
Kindly mind the Question got some corrections the Equity Shares, Share Premium and RE shown on the top of the question was actually as at 30 June 20X7, instead of 20X8. all the solutions make sense after the change. Its normal for mistake to occurs, i really do appreciate open tuition for providing a free learning platform for student who do not have enough money to get official textbook
I mean the answer in the TEXTBOOK will make sense after correcting the information given for Equity Shares, Share Premium and RE to 30 June 20X7, instead of 20X8
But still, there is another correction for calculating Revaluation surplus and it is calculating carrying value of the asset (I mean calculating the depreciation for 5 years and deducting it from original cost) before deducting it from the fair value, isn’t it?
Building B/F is as on 1 July 20X2. why wasn’t the depreciation computed for 5 years? Please answer
got that same doubt buddy
Thanks for this question. I checked the lecture notes because of it and saw that the answer here was actually wrong.
This solution is incorrect and revaluation surplus is wrong. I am actually happy with this as it means I know the subject lol
Yup! You are right
The dividend that were issued worth $600,000 isn’t that we were suppose to say $600,000×1.80 =1 080 000 instead of using the $0.80?
Please can you clarify this for me here!
That was 600,000 dividends issued at price of $1.80 meaning there was 600,000 dividends issued at a standard price of $1 and $0.80 added as a share premium.
Therefore, for 600,000 somebody had to pay $1,080,000 but we recognise it as $1 share price + $0.80 share premium per each individual share. Hope that makes sense.
Well explained. Thank you. I was equally confused when I saw that in the solution.
Since it wasn’t specified that the premium was 0.80, is it safe to assume when we come across such questions in the exam?
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“Klopp, he’s a wise guy”. Not quite Mikel Arteta is he.
Great
Well Explained
Anyone else notice the revaluation reserve figures were wrong ? Think it should have been the revalued amount – CV for the building not historic cost? So the figure would have been £900,000 for the building + £100,000 for the land giving a total of £1,000,000 not £500,000. Or am I missing something?
Hey, did you ever get an answer to this? I would have depreciated the historical cost at 5 years at £100k, so £1m in reserve too x
Yes, you can do it both ways. In your ways, you first need to deduct 500k and then add 1,000 in reserve
The tutor faster add 500k in reserve. At the end, it will give the same result on Statement of Equity Change
Sorry! I take that wrong. I tend to agree that 1m in reserve
yes there are two mistakes made by the tutor(MR CHRIS).
1) the revaluation gain was calculated without deducting the depreciation. the right amount gain is 1000000.
2) the dividend amount for june 2008 was calculated with taking the effect of full issue of shares. 600000 shares were issued on 1 jan 2008 ,which is half of the year. dividend declared for 2008 shud be 108000.
I agree that there might be a problem with the revaluation phase, but I’m not sure about the dividends part of the answer I think it is correct.
The dividend has been correctly accounted for because the shares at the time of declaration were 3m (2.4m +0.6m) and all of the holders are entitled to it. You don’t have to take half of the 0.6m issued because the question does not say that they’d be entitled to only half the amount. You don’t have to time apportion it either if that’s what you’re assuming because 0.04 per share is not an interest rate.
Also please for the sake of the community make sure that you are a 100% sure before saying how a certain thing should be accounted for because all it does is create confusion when you’re saying something incorrect with so much confidence. Hope you weren’t offended but this had to be said. Goodluck!
The dividend is correct while the calculation of revaluation is wrong.
see dividend below
20X7 “Klopp Co declared the 20X7 final dividend of $0.05/share for all shares in issue on 30 June 20X7, on 9
July 20X7”. Anyone who subscribes for shares on or before 30/06/x7 is qualify. Note this wasn’t accounted for before the close of 20×7(0.05*2,400,000)= 120,000
20X8 “An interim dividend for the year-ended 30 June 20X8 of $0.04/share was declared on 4
April 20X8 for all shares in issue on 31 March 20X8”. Shares issued on or before 30 June X8(2,400,000 + 600,000)*0.04 = 120,000
I got the same thing as you. I hope Chris responds to this
i have the same query ! any answers?
Please ask in the Paper FR Ask the Tutor Forum and then our FR tutor will reply 🙂
Thanks. I revisited an open question: https://opentuition.com/topic/chapter-5-practice-question-klopp-co/#post-638670 . Was there any update afterwards?
hi,
I depreciated building for 5 years and then I revalued it ? have I made mistake?
thanks
Kinga
I have an issue with this question. The extracts mentioned in the question is as at 30 June 20×8. Except for the retained earnings (which is opening balance), the other two amount should be as at the Year end which would mean that it includes the issue of shares on 1 Jan 20×8. Therefore, i had to work back the equity share and the share premium to bring the balance to 30 June 20×7 for the opening balances. Correct me if I am wrong. Thanks.
should say 30 june x7 pal treat it as x7
Thats exactly what I did too!
In hindsight though, as the proceeds were credited to a suspense account, I wonder if that is meaning that the share issue isnt within the trial balance @ 30/6/18
This is what I did too and I’m sticking with that If it was meant to be 20X7 then there would be no need to specifically mention the retained earnings as being 20X7.
You are correct up to the issue of shares. In practice suspense account is a dumping ground for transactions that need clarification. That needs to be adjusted for and posted to the correct GL thereby clearing the suspense account at year-end so the tutor is correct and the question is correct on that.