FRMock exam - question 15: Assets revaluation

Hi, I used to stuck on these as well, but I have figured out a way and hopes it is useful to you. Mike, if you are reading this, please comment if I am correct on this. The $40,000 is the excess depreciation charge. Depreciation charge before valuation = $80,000 Depreciation charge after valuation = $120,000 Therefore, an increase of $40,000 The question will carry a sentence that sounds like "X co makes an annual transfer to retained profits to reflect the realisation of the revaluation reserve". Highlight that sentence knowing that the excess depreciation is to be deducted from revaluation reserve and added to retained earnings (SOCIE).

Hi Emma, Thanks a lot for your reply. Much appreciated! The question is: what will be depreciated to the asset account and what will the next year depreciation charge be? From my under standing: revalued by $600,000 means the assets will now have a carrying of: (800,000 - 560,000) + 600,000 which is now $840,000. Depreciation by straight line for 5 years results a depreciation charge of $168,000 each year. A debit of $40,000 to the asset account results in $840,000, the new carrying figure above? I still don't get this part? Really appreciate if anybody can help me with this. Thanks a lot!

That is not the conception of revaluation. The purpose of revaluation model is to ensure that the carrying amount of the asset does not differ materially from the fair value at the reporting date. Let me show you my approach in calculating PPE @ cost value: $800,000 Accumulated depr: ($560,000) CV @ (date): 240,000 Revaluation @ (date): $600,000 Gain on revaluation $360,000 Depreciation charge for the year: 600,000/5= (120,000) CV @ y-end: 480,000 Note that besides looking for hints from the question on excess depreciation transfer, must also see if the gain on revaluation needed to be transfer to deferred tax. *I am reminding myself actually.

Hi, Before revaluation Asset account 800,000 Depreciation account 560,000 (Item revalued to additional 600,00) After revaluation Asset Account 840,000 (800,000-560,000+600,000) Depreciation account 560,000 Hence 40,000 needs to be debited to asset account.