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Binkie Co has an item of land carried in its books at $13,000. Two years ago a slump in land values led the
company to reduce the carrying value from $15,000. This was taken as an expense in profit or loss. There
has been a surge in land prices in the current year, however, and the land is now worth $20,000.
Account for the revaluation in the current year.The double entry is:
DEBIT Asset value (statement of financial position) $7,000
CREDIT Profit or loss $2,000
Revaluation surplus $5,000I didn’t understand the second line in the question saying “a slump in land values led the
company to reduce the carrying value from $15,000” the PPE had the value of 13000 before what happens after the slump? Didn’t really get it.Also the entries answer belong to the current surplus I guess. what would have been the entry before when the slump happened.
After reading the question again n again, I think it says the property originally had the cost of 15000 and was reduced to 13000 after the slump and then revalued again at 20,000? is that right?
Hi,
It is saying that it is at 13,000 as it was reduce from the 15,000. Therefore 2,000 will have been taken as an impairment through profit or loss.
On revaluation to 20,000 we take the increase to where the initial impairment was recognised, hence the 2,000 through profit or loss. The remainder then goes through the revaluation reserve and OCI.
Thanks
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