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Banjo Co. purchase a building on 30 June 20X8 for $1250,000. At acquisition, the useful life of the building was 50years. Depreciation is calculated on the straight line basis. 10years later, on 30 June 20Y8 when the carrying amount of the building was $1,000,000, the building was revaluated to $1,600,000. Banjo Co. has a policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings.
Assuming no further revaluation take place, what is the balance on the revaluation surplus at 30June 20Y9?
Answer is $585,000
Why accumulated depreciation (as per old depreciation) is not first subtracted from Revaluation surplus before entering into excess of depreciation calculation?
At the date of revaluation (30 June Y8), there is a revaluation surplus of $600,000 (the difference between the revalued amount and the carrying value/net book value).
The depreciation for the year to 30 June Y9 is calculated on the revalued amount and is therefore 1,600,000/40 = $40,000. Had there not been a revaluation, the depreciation would have been 1,250,000/50 = $25,000.
The excess of $15,000 is transferred from the revaluation surplus to retained earnings, so the balance remaining on the revaluation surplus account is 600,000 – 15,000 = $585,000.
Yes sir. But my question is different.
Why accumulated depreciation (as per old depreciation) is not first subtracted from Revaluation surplus before entering into excess of depreciation calculation?I understood your question perfectly, and the accumulated depreciation is never subtracted from the revaluation surplus.
The surplus is the difference between the revalued amount and the carrying value of the asset. The carrying value / net book value (which is what is given in this question) is the original cost less the accumulated depreciation.
Sir in this question we subtract Accumulated Depreciation from Revaluation Surplus. Can you make me clear please. I am very confused.
A company bought a property four years ago on 1 January for $ 170,000. Since then property prices have risen substantially and the property has been revalued at $210,000.
The property was estimated as having a useful life of 20 years when it was purchased. What is the balance on the revaluation surplus reported in the statement of financial position?
A $210,000
B $136,000
C $74,000
D $34,000
Answer is CThe accumulated depreciation is never subtracted from the revaluation surplus!!
The accumulated depreciation is subtracted from the cost in order to get the carrying value (net book value).
Here the cost was $170,000 and the accumulated depreciation at the time of the revaluation was 4 x 170,000/20 = $34,000.
Therefore the carrying value was 170,000 – 34,000 = $136,000.
The surplus on revaluation is the difference between the revalued amount and the carrying value, as I wrote before, and is therefore 210,000 – 136,000 = $74,000.
I do suggest that you watch my free lectures on this.
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