- This topic has 4 replies, 3 voices, and was last updated 6 years ago by
.
- Posts
Hi
If you have access to the above exam question bank at the back of the BPP study text please can you help with Q5? I am trying to self teach F7 but have to admit I am finding it quite hard.
I understand the opening balance and the restated balance.
I am confused when looking at the changes in equity for 20×9.
I think I am happy with the share capital figure of £600,000 (I assume this is from the issue of 200,000 ordinary $1 shares bonus shares capitalising its share premium reserve and 400,000 $1 ordinary shares (issue price $1.40). I am not sure about the share premium figure of -$40,000. Is this because the 400,000 share were issued at $1.40 so there would have been a premium figure of +160,000. The 200,000 ordinary shares were issued as “bonus shares capitalising its share premium reserve”. I am not sure what this means but I guess it must be a cost to the company of $200,000 – I am only guessing this because +160,000-200,00 gives the -40,000 in the answer.
I don’t understand why the “assets held at cost were impaired by $25,000” do not have an impact on the statement of change in equity for the year. I would have thought this would have resulted in an amendment to the revaluation surplus.
And finally, I don’t understand the calculation to the final transfer to retained earnings W2 in relation to the revalued asset. I don’t understand why it is multiplying both the 80,000/10 and the 30,000/ 10 by 3.
I really hope you have access to this question and that you can assist me.
Thank you.Hi – sadly, I don’t have access to the book. however, I believe that I can help you substantially, so all is not lost.
From your post it seems that a new issue of shares has taken place to raise finance. 400,000 $1 equity shares issued at $1.40 gives, as you correctly point out, a premium on issue of $160,000
The cost of issuing 200,000 new shares as a bonus is covered by the capitalisation of the share premium account which therefore reduces by $200,000. the NET effect is, again as you have said, results in a reduction of the share premium account by $40,000
So you are absolutely correct so far
The post about “assets held at cost were impaired by $25,000? will not affect revaluation account because there is no amount in the revaluation account relating to those specific assets! They are held at cost, not at a revalued amount
Without more detail about the 80,000/10 and the 30,000/10 – sorry but without that greater detail I have no way of understanding what you are talking about.
if you’re still struggling, post again, but next time please give me all relevant information
Thank you so much for your help, I would like to ask more on this one though.
On the “assets held at cos were impaired by $25,000”, would there have been an charge to the I&E for $25,000 then to reduce the asset value? Maybe that is why this does not impact on the statement of changes in equity.
The final part I was struggling with was:
A previously revalued asset was sold for $60,000
Details of the revaluation are as follows
Book Value at revaluation $30000
Revaluation $50000
Total $80000
Depreciation (80,000/10*3) = $24000
Total $56000
Gains has been following paragraph 41 of IAS 16 which allows a reserve transfer of the realised revaluation surplus (the difference between depreciation based on revalued amount and depreciation based on cost) as the asset is used to retained earnings.
Revaluations during the year relate to land.Gains is the company name.
I am struggling to prepare the statement of changes in equity for gains for this part.
The answer is -35000 to revaluation surplus, + 35000 to retained earnings.
It takes the $50,000, less (80000/10-30000/10)*3= $15,000 = $35000.I can kind of follow the number crunching but I am not clear what is happening and can’t see why this appears as it does in the statement of change in equity.
If you maybe explain what is going on here in a different way I may be able it follow it?
I am aware I need to go back and get my head round what the statement of changes in equity is showing and maybe this question would have made more sense.
Thank you so much.
The $15,000 would have been transferred ($5,000 x 3) from revaluation to retained earnings to compensate retained earnings for the additional depreciation charge over the three previous years.
the revaluation reserve relating to this asset would therefore have been credited by $50,000 (on revaluation) and then debited by $15,000 (credit to retained earnings) as above
That means that there is only $35,000 left in revaluation account relating to this asset.
The asset is now sold so the gain is now a realised gain and is transferred out of revaluation reserve and credited to equity.
Does that explain it for you?
- The topic ‘BPP Study Text Exam Bank Q5, Gains (2012 and June 2014 edition)’ is closed to new replies.