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Hi Mike…
You replied to a different student the below when he asked you:
“Before letting the building on lease, Peke had owned that building for 9 years and 4 months.
Annual depreciation was $27,600
9 years and 4 months at the rate of $27,600 is $257,600 so, at date of valuation on 31 May, 2011, the carrying value was $1,122,400
valuation was $1,520,000
So credited to Revaluation Reserve was $397,600
OK?”
And…
“It’s been reclassified as an investment property that uses fair value model so gains and losses go through statement of income, not through revaluation reserve”
My question is….
Where is the relevance of the building being reclassified as investment property? How does this affect the revaluation reserve?
I thought the correct answer would be $632,670, by taking the “full” amount of the revaluation into account, i.e. $1,750,000
Please could you explain this in a different way?
Thank you for your work.
When a property is to be reclassified from an asset under IAS 16 to an investment property, it’s necessary to value that property at fair value as at the date of reclassification. And gain on that revaluation is taken to the Revaluation Reserve
From that moment on, any change to the value of that investment property under the fair value model is taken annually to the statement of profit or loss and not to the Revaluation Reserve
Is that better?
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