- This topic has 5 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Trial balance at 30 September 20X5
Investment properties at FV-20000
Land($5million) and buildings-at cost-35000
Plant and Equipment-at cost-58500Accumulated depreciation at 1 October 20X4: Buildings-20000
Plant and Equipment -34500Note:
On 1 October 20X4, Kandy owned two investment properties.The first property had a carrying amount of $15 million and was sold on 1 December 20X4 for $17 million.The disposal proceeds have been credited to a suspense account in the trial balance above.On 31 December 20X4, the second property became owner occupied and so was transferred to land and buildings at its FV of $6 million. Its remaining useful life on 31 December 20X4 was considered to be 20 years.
The price of property has increased significantly in recent years and so the directors decided to revalue the land and buildings .The directors accepted the report of an independent surveyor who, on 1 October 20×4, valued the land at $8 million and the building at $39000 on that date.This revaluation specifically excludes the transferred investment property described above.The remaining life of these buildings at 1 October 20×4 was 15 years.
Plant and equipment is depreciated at 12,5% per annum using the reducing balance method
No depreciation charged to 30 September 20X5.
The mock exam in Bpp page number 213, page number of answer 236
The answer in the Bpp.
Carying amount at 1 October 20X4(35000-20000)—15000
Revaluation at that date (8000+39000)——-47000
Gain on revaluation——————- 32000Buildings depreciation for the year ended 30 september 20×5
Land and buildings existing at 1 october 20×4(39000/15 years)—-2600
Transferred investment property(6000/20*9/12)————————–(225)
2825
Carrying amount at 30 september 20×5(47000+6000-2825) 50175In the answer, they depreciated 6000 because i
Investment properties at FV-20000
Land($5million) and buildings-at cost-35000Accumulated depreciation at 1 October 20X4: Buildings-20000
Land 5 million
Building 30000-20000(AD)=10000
overall 15000-then if we deduct this amount from ”Investment properties at FV-20000”-the remaining amount is 5000 which became owner occupied and increased to 6000 that is why depreciated.
Gain on revaluation of investment property arising from its 6000(above) and ”5000”(overall 15000-then if we deduct this amount from ”Investment properties at FV-20000”-the remaining amount is ”5000”)I think it is logical way of solution.
Are we still on the question Kandy from BPP mock exam?
Because, if we are, I can’t see where you’re getting any investment property details from and, if we’re not, what question are you looking at?
Yes Kandy co at 30 September 20X5 from Bpp
Trial Balance shows
Investment properties at FV-20000
Land(5) and building——-35000plant and equipment-also included in the trial balance but it does not relate to investment property criterion at least it should have said it has been revalued or it had FV something like that.
AD at 1 october 20×4-20000
If i knew your email, I would send its photo that, the trial balance shows the above information.
two investment property means
inside of investment property 5000 is one of investment property and the rest 15000(Land and building 35000-AD 20000)
there is not another way to understand this question.
This is a BPP adaptation of the examination question Kandy
Here’s the original:
and there’s no mention of any investment property!
It looks to me that BPP has made a mess of a perfectly good question and has failed fully to follow through their amendments
Might I suggest that my first solution to your original post where I showed the journal entries is the one that you should use as the correct treatment for the revaluation, transfer from the suspense account and calculation of the depreciation
Incidentally, I believe that your interpretation of the figures is incorrect
The 2 investment properties are valued at $15 million and $5 million
The first was sold for $17 million and the second became owner occupied so was transferred at fair value into the category Land and Buildings and depreciated with effect from the date of that transfer
OK now?
if it sold at 17 million it would be withdrawn from the Balance sheet but they continued to revalued land and building.
I think the question is in itself wrong. It can be corrected when ”the phrase of 17 million sold” is removed.
The first property had a carrying amount of $15 million and was sold on 1 December 20X4 for $17 million.The disposal proceeds have been credited to a suspense account in the trial balance above
This tells us that the double entry on disposal was not completed correctly
What they HAVE done is:
Dr Cash $17 million
Cr Suspense $17 millionWhat they SHOULD HAVE done is:
Dr Cash $17 million
Cr Investment Property account $17,000Then:
Dr Investment Property account $2 million
Cr Profit or Loss $2 millionWhere have they continued to revalue Investment Property? There is no longer any investment property to revalue
The revaluation that has continued after the disposal in December is in relation to the other land and buildings, not to the investment property
OK?
- The topic ‘Gain on revaluation of investment property prior to transfer’ is closed to new replies.