Dec 2016 Exam – Maykorn

Maykorn Co prepares its financial statements to 30 September each year.
On 30 September 20X3, Maykorn Co moved out of one of its properties and put it up for sale. The property met the criteria as held for sale on 30 September 20X3. On 1 October 20X2, the property had a carrying amount of $2.6m and a remaining life of 20 years. The property is held under the revaluation model. The property was expected to sell for a gross amount of $2.5m with selling costs estimated at $50,000.

What is the total amount charged to Maykorn Co’s profit or loss in respect of the property for the year ended 30 September 20X3?
? $130,000
? $180,000
? $150,000
? $100,000

Answer: Property is depreciated by $130,000 ($2,600,000/20) giving a carrying amount of $2,470,000. When classed as held for sale, property is revalued to its fair value $2,500,000 (as it is carried under the revaluation model, $30,000 would go to revaluation surplus). Held for sale assets are measured at the lower of carrying amount (now $2,500,000) and fair value less costs to sell ($2,500,000 – $50,000 = $2,450,000) giving an impairment of $50,000. Total charge to profit or loss is $130,000 + $50,000 = $180,000.

If the revaluation surplus was previously increased by the revaluation per $30,000 when a following impairment occurred why not reduce the revaluation surplus by $30,000 and charge to P+L the remaining $20,000?