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It’s about the Speculate investment property revaluation:
My tutor told us, investment property has two measurement:
1. fair value model, gains and losses all go to p/l
2. revaluation model, gains go to revaluation surplus, eventually go to retained earnings, losses go to p/l.This question doesn’t say Speculate uses fair value model or revaluation model, but the answer from BPP shows that the increase in revaluation go to p/l.
Is the answer correct, my tutor was wrong? really confuse me..
Thank you.
I don’t have a BPP text / mock exam available but the company Speculate was the name of a question in a past exam. Sadly, I don’t have the exam reference so maybe you might look that up to make sure that BPP have not omitted some vital piece of information as they prepared their mock exam
I just realised it applies to revaluation model in the question, so the gain in revaluation should go to surplus rather than p/l, but BPP add it to p/l. The question is:
Speculate owned an office building with a depreciated historical cost of $2m and a remaining useful life of 20 years at 1/4/20×2. On 1/10/20×2 Speculate ceased to occupy the building and let it out to a third party. The property was reclassified as an investment property, applying the revaluation model in accordance with IAS 40. the value of property was independently assessed at $2.3m at 1/10/20×2 and had risen to $2.34m by 31/03/20×3.
What amount will be charged/credited to profit or loss in respect of this property for the year ended 31/3/20×3?
My answer is only 6 months depreciation should go to p/l, 2m/20years x 6/12=50,000, BPP has different answer.
Mike, can you please let me know your calculation? MT.
I agree $50,000
The carrying value is now down to $1,950,000
The revaluation on reclassification as investment property ($350,000) goes to Revaluation Reserve through Statement of Comprehensive Income.
Any subsequent changes in fair value go through Statement of Profit or Loss
Ok?
Hi Sir Mike,
I also got problems with this question. I worked out the question and got $50,000.as the charge to go thru P/l and normally $40,000 will go thru the revaluation reserves, if asked. but Bpp has netted off the depreciation charge against the revaluation and charge $10,000 to P/L. kindly explain to me the logic in this.
thanks
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