Cost of Investment in calculating goodwill

Yes - in Hillusion we are buying the loan note from the subsidiary so that will get cancelled out on consolidation.

In others we are issuing the loan note to the people who were formerly the shareholders of the subsidiary - effectively it's us giving a promise to pay them some more money in the future in exchange for them transferring their shares in the subsidiary to us today

Hi guys help me account these revaluations.


Ballec PLC the year ending 31 December 2012
using IAS 16 and 40
i) Machine B was purchased 13 June 2009 for £600,000 and estimated to have a 10 year useful life. Following a review of asset lives on 30 June 2012 the remaining estimated useful life was revised to 4 years.
ii) Building X and building Y were both purchased 5 years ago for £1m each and were estimated to have useful lives of 50 years at acquisition. Building X is used in the business of Ballance plc whereas building Y is an investment property. Ballance uses the fair value method as allowed by IAS40 to value investment properties.
As at 31 December 2011 both buildings were valued at £2m each and these valuations were reflected in the accounts for that year. Remaining useful lives of both buildings were revised to 50 years at that date.
At 31 December 2012 both buildings were valued at £2.5m each. These valuations are to be reflected in the accounts.
Ballance plc provides depreciation on a straight line basis charging one month depreciation for each complete month of ownership.


many thanks

What help do you need?

I need to sort it out the following adjustment please, especially accounting the second year's revaluation 2012. both revaluations are upwards in both years. so shall I use the carrying value in 2011, I really don't know.

Company T The year end is 31/12/2012
A building X was brought 5 years ago for £1m and was estimated to have a useful life of 50 years at acquisition.
At 31/12/2011 the building was revalued at £2m this valuation was reflected in the accounts for the year. Remaining useful life was revised to 50 years at that date.
At 31/12/2012 the building was revalued at £2.5 this valuation is to be reflected in the accounts.

So you can see in both years the building was revaluated upward. What I will like to know is how to account this finally revaluation in 2012

The first revaluation would have been accounted
Dr the building
Dr Acc depreciation (Historical)
Cr the revaluation reserve
What about the second year’s revaluation How should I account this
Many thanks

I believe it would be Dr Accumulated depreciation 40,000, Dr TNCA 500,000 Cr Revaluation Reserve 540,000

Hi MikeLittle thank you for responding for my question. Only one final question please.

first is the way I have accounted the first revaluation right?
and finally according to your comment do you mean for the second year's revaluation I will
have to only Dr acc depn, DR Total of non-current assets (TNCA), and Cr revaluation reserve. but the depreciation charge has increased, thus shouldn't I have to adjust the depreciation charge and make any necessary transfers from Reval to Retained Earnings.


many thanks

I agree with the good practice side of making the annual transfer from Revaluation Reserve to Retained Earnings - a quick calculation suggests the amount to transfer would be 40,000 - 10,000 ( the original depreciation for half a year on the $1 million ).

OK?

OK. thank you for your help.

@mikelittle said:
I agree with the good practice side of making the annual transfer from Revaluation Reserve to Retained Earnings - a quick calculation suggests the amount to transfer would be 40,000 - 10,000 ( the original depreciation for half a year on the $1 million ).

OK?

why the original depreciation for half a year on the £1m when there was a second valuation of £2m which was reflected in the accounts. and why half a year .

many thanks

Because the second revaluation ( as I recall ) was done half way through the year. Why bother depreciating for half a year if we are then going to revalue? Because it's the right thing to do. I could be persuaded to agree with you that it seems a waste of time but, if we don't do this, the profit for the year will be overstated by the half year's depreciation and the revaluation reserve will be understated by that same amount

@mikelittle said:
Because the second revaluation ( as I recall ) was done half way through the year. Why bother depreciating for half a year if we are then going to revalue? Because it's the right thing to do. I could be persuaded to agree with you that it seems a waste of time but, if we don't do this, the profit for the year will be overstated by the half year's depreciation and the revaluation reserve will be understated by that same amount

HI Mikelittle thank you for your quick response. I am really sorry to annoy you, because I am a freshee or new to the F7.

I think you are referring ii) Machine B which was brought in 13/june/20009 and than its remaining useful life was revised on 30/06/2012. in this circumstances will have to charge half a year depreciation charge.

However , respecting your experience and knowledge, it seem to me that in question iii)
building X was brought 5 years ago and with estimated useful life 50 years , on 31 dec 2011 depn charge will have to be 1m/50 = 20k .

£000
carrying value at 31/12/2012 (1-(m -20k*4) )= 920k
valuation 2000m

gain on revaluation 1080k

Dr Building 1000m
Dr Acc depn 80
Cr 1080

remember this revaluation has been reflected in the accounts. thus,
it is this second revaluation in 31/12/2012 we have to reflect in the accounts.


the second revaluation will go as :
£000
carrying value at 31/12/2012 ( 2000-(2000/50)= 40) 1960
valuation 2500

Gain on revaluation 540

Dr Building X 500
Dr Accu Depn 40
Cr revaluation reserve 540


Reserve transfer :

Historical cos depn charge 2m/50 40
Revaluation depn charge 2500/50 50

Excess depn to be transferred 10

Dr revaluation reserve 10
Cr Retained Earning 10


I am I on the right track. Because in both years 2011 and 2012 the company have revised the building's useful life to 50 years .

I am really I still don't get the half-year depreciation charge you mentioned

many thanks

I thought you told me that the revaluations took place as at 30 June ie half way through the year. Now I look again at your post from 6 days ago, I see it was only the machine B which was re-assessed at June.

Sorry, my careless reading of your question

hi Mikrlittle .

thank you for your comment. Will you please recomment again and review it the way I have done it, is it right or wrong. and finally give me a mark e.g 10/10.

If I correct these steps it will help me to solve so many mistakes I have made in F7 Practice and Revision kit 2012. Every task in the book got this.

thank you again for giving me a lot of your time to help me pass F7.

many thanks.

awdal26