- May 28, 2020 at 10:00 pm
I have a query you will hopefully be able to answer for me. On Kaplan’s exam kit booklet they have the following question:
On 31 Jan 2018, Westvale Co disposed of a building for $450,000. The building was accounted for using the revaluation model. At the date of disposal, after deduction of accumulated depreciation of $90,000, the building had a carrying amount of $310,000. It also had a revaluation surplus in equity of $30,000.
What was Westvale Co’s profit on disposal of the building for inclusion in the statement of profit or loss for the year ended 31 December 2018?
The answer at the back of the booklet is:
$50,000 – The profit on disposal is calculated using the carrying amount of the building at the date of disposal. The revlauation surplus does not form part of the calculation of profit or loss on disposal.
Now i thought the profit or loss on disposal of a NCA is the difference between the disposal proceeds ($450,000) and the carrying amount ($310,000), so should the profit not be $140,000?
It seems they have listed the profit as the difference between the disposal proceeds and the original cost ($310,000 + $90,000). Can you help me understand where i have gone wrong please.May 29, 2020 at 9:09 am
Assuming that you have typed the details correctly (I do not have the Kaplan book and so I cannot check myself) then it appears they have made a mistake.
The profit on sale is calculated as 450,000 – 310,000 = 140,000.
The revaluation surplus of 30,000 is then transferred to retained earnings because it has now been realised and is therefore now distributable.May 29, 2020 at 9:39 am
Thanks for confirming, i thought they may have made a mistake but just wanted a second pair of eyes to go over it and confirm too.May 29, 2020 at 3:12 pm
You are welcome 🙂
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