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I’m struggling to understand how we treat a loss on revaluation in the financial statements if there is a previous gain on revaluation to take into consideration.
I’m looking at a question that asks:
“A company moved into its current Head office on 1 July 2012 when it acquired the premises for £280m. At that time the amount of the purchase consideration attributable to the land was £80m with the remaining £200m attributable to the building. The building was considered to have a useful life of 25 years at that date.
The premises were revealed on 30 June 2017 at £290m, which was split £90m for the land and £200m for the buildings.
In the year ended 30 June 2018, property values reduced and the company’s Head Office premises were revalued at £250m. All of the reduction in value from the previous year was attributable to the value of the buildings”.
What would be the carrying value in for the year ended 30/07/2018?
Many thanks for your time and help.
Hi,
OK, so have you set out your answer in the same format as we’ve done in the class notes? If not then I’d recommend that you start there and use the columns for historic cost, revalued amount and revaluation surplus.
Work it using the working and then let me know where exactly your are struggling. Focus on getting the initial revaluation correct first and the subsequent treatment before considering any reduction in value of the asset.
Once you’ve done that I’ll then help you further.
Thanks
Hi there,
Thank you for the reply.
I have used the format as shown in the lecture. I get to the carrying value on 30.06.2017 and after that it doesn’t seem right. There’s left over reserve of £18k, is that correct? I haven’t completed the whole question but this is what I have so far:
Narrative Land Building Total Revaluation Reserve
Cost (01.07.2017) 80000 200000 280000
Acc. Depn
(200000/25yrs) x 5 yrs (40000) (40000)CV (30.06.2017) 80000 160000 240000 290000 50000
Depn
(200000/20 yrs) x 1 yrs (8000) (8000) (10000) (2000)CV (before) 280000 48000
(30000) (30000)
CV (after) 250000
Thanks
Ok that table hasn’t come out at all clear.
I’m at the stage where there’s £50m in reserve after the revaluation gain.
I then calculate the years depreciation on the building, from 30.06.2017 – 1.07.2018, which is £10m. Then I do the depreciation for the original value of the building (£8m), leaving the reserve at £48m.
This means all of the reserve can absorb the decrease in asset value, leaving excess of £18m..
Hi,
Yes, I’ve just checked your calculations and can see that they’re correct. The revaluation reserve is at £48m so it can absorb the decrease of £30m leaving the £18m left. If we wanted to be really specific, then of the £18m, £10m belongs to the land and £8m to the building.
Good work on solving the question, well done.
Thanks
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