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Company J’s head office building had a carrying amount of $400,000 at 1 January 20X4 and 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? Answer is nil
2nd is
on 1 January 20×7 a building with a carrying amount of $700,000 was revalued to $750,000, The remaining useful life at that date was 25 years. On 1 January 20×9 the building was sold for $800,000 What profit on disposal of the building will be reported in the statement of profit or loss for the year ended 31 December 20X7?In the first case there is no charge to the SOPL.
The carrying value at the date of sale is 600,000 – (2 x (600,000/30)) = 560,000.
Therefore there is a “loss” of 560,000 – 450,000 = 110,000. However there is a balance on the revaluation reserve of 200,000 (and no loss based on the pre-revaluation value) and so the 110,000 is set-off against the revaluation reserve and the remaining 90,000 is transferred to retained earnings as it now becomes distributable.In the second case, the carrying value at the date of sale is 750,000 – (2 x (750,000/25)) = 690,000. Therefore there is a profit on sale of 800,000 – 690,000 = 110,000 for the SOFP. (The balance on the revaluation reserve of 50,000 is transferred to retained earnings.)
I think in the second case the given period is wrong. It should be 31 December 20X9.
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