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Company J’s head office building had a carrying amount of $400,000 at 1 January 20X4 and 30 years useful life remaining. It was revalued on that date to $600,000 with no change to the useful life. On 1 January 20X6, following a property slump, it was sold for $450,000. What amount (if any) should be charged against profit or loss as loss on disposal?
Answer is nil.
What is the reason for subtracting loss from Revaluation surplus. We should have charged 110,000.
Tutor, I have seen no question or concept as this in kaplan kit and text. Can you help me out. Stuck badly.There is only a loss in the SOPL if it is sold for less that the original cost (which is not the case).
Given that it no longer exists the balance remaining on the revaluation account can all be transferred to retained earnings.
Professor, he is asking for charge on loss on disposal in Income Statement. So transfer from Revaluation surplus and Retained earning is different thing. I am still unclear about this. Is he trying to ask the retained profit for the year?
Secondly, professor, he is not saying anything about excessive depreciation transfer policy so how can be assume that business is not taking that policy. May be business had taken that policy and some of revaluation surplus had already have been transferred.
Sorry professor to ask questions back to back. It is really confusing me and you are my source only.
The question asks what the charge in the SOPL will be for the loss on disposal.
There is no loss on disposal when the proceeds are compared with the original cost.As far as the revaluation reserve is concerned, it has nothing to do with transfers of excess depreciation. The only reason for the profit on revelation going to the revaluation reserve is because it is not distributable as dividend and so needs to be kept separate. Once the asset is sold any balance on the revaluation reserve becomes distributable and is transferred to retained earnings.
Professor, you mean to say that we will compare sale proceed with actual cost here?
Carrying value is $400,000 (after further depreciation of 2 years which is not explained here so can not find) would be compared to sales proceed of $450,000. Professor can you define what is original cost here. I tried to find disposal on revalued asset in your lectures but could not find that is why asking so much.Professor one more thing if it would have asked for gain on disposal and sale proceed would have been 660000 so the answer would have been 300000 (100000 gain +200000 revaluation surplus)?
There is only a loss if the sales proceeds are less that the carrying value has there been no revaluation. Since the original cost is less than the proceeds then the carrying value has to be lower – so no loss.
Your second post is correct.
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