MCQ About Revaluation IAS 16

"So, the balance on the revaluation reserve is $340k-$7k = $270k." ????? Do you want to recheck your mathematics? $340 - $7 = $333! According to my calculations, $333 should be the answer. Does the text book not explain how they have arrived at whatever figure they have given as the answer? What answer is shown in the book?

Sry, that's right. But it's not a correct answer. The answer is $316k.

The answer is derived from deducting excess depreciation ($340k/20) and revaluation loss ($7k). (i.e 340k-17k-7k=316k ) And I dun understand why they find the excess depreciation by using revaluation reserve divide with the remaining life?.

Hi - ok, that's easy! If we had not revalued, the depreciation would have been $6 ($120 / 20) As a result of the revaluation, the depreciation has moved to $23 ($460 / 20) and that's an increase of $17 It is good practice to transfer from Revaluation Reserve an amount equal to the excess depreciation caused by the revaluation from Revaluation Reserve to Retained Earnings So, from a Revaluation Reserve amount of $340, we need to deduct the transfer of this excess depreciation to Retained Earnings ($17) and then deduct also the reversal of the revaluation when the fair value drops to $430,000 Does the question indicate that the company DOES carry out this annual transfer from Revaluation Reserve to Retained Earnings? If so, that's an important piece of information that you failed to give me! Is that ok now?

Yeah, thank you! And Well, no more information given in the qns. I have copied exactly same from the book.

Ok, but it's not a requirement to make this transfer - it's merely a recommendation

Correct Answer is B=316K @ 31 Dec 20X5 C.V=120000 Fair Value= 460000 Revaluation Gain= 340000 Remaining useful life= 20 years @ 31 Dec 20X6 Remaining useful life is 19 years so C.V=460000 Depriciation for the year=24210 (460000/19) Excessive Depriciation= 24210- (120000/20)= 18210 C.V=460000-24210= 435790 Revaluation loss= 430000-435790= -5790 Revaluation Reseves Revaluation Gain:@31 Dec20X5 340000 Excessive Depricition for 20X6= (18210) Revaluation loss @ 31 Dec20X6= (5790) Balance as @ 31 Dec 20X6= 316000

"@ 31 Dec 20X6 Remaining useful life is 19 years" For the year that we are looking at, that is the year ended 31 December, 20X6 there were 20 years remaining useful life At the start of X6 the directors said "This machine of ours has a remaining useful life of 20 years. So let's write it off over 20 years" They didn't say "By the end of this year there will only be 19 years of life left so let's write it off over 19 years" You need to sort this out in your head - it's a common visitor to F7