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Example 5
Purpurs has a year end of 31 December each year.
In his Statement of Financial Position as at 31 December 2002 he has buildings at a cost of
$3,600,000 and accumulated depreciation of $1,080,000.
His depreciation policy is to charge 2% straight line.
On 30 June 2003, the building is to be revalued at $3,072,000. There is no change in the remaining
estimated useful life of the building.
Show the relevant ledger accounts for the year to 31 December 2003.
This question is from Financial accounting (page 65)Solution
Narration Cost Revaluation Reserve
Cost(1.1.03) 2520000
Dep (25200)
Carrying value 2494800 3072000 577200
In the video lecture on financial accounting revaluation reserve is 588000.
Can you please help?The carrying value at the start of the year is 3,600,000 – 1,080,000 = 2,520,000.
The revaluation is 6 months later, and so we need to depreciate for six months before revaluing.
6 months depreciation is 1/2 x 2% x 3,600,000 = 36,000.
This brings the carrying value down to 2,520,000 – 36,000 = 2,484,000
It is revalued to 3,072,000, and so the surplus on revaluation (going to the revaluation reserve) is 3,072,000 – 2,484,000 = 588,000.
(Although I show the double entries in the lecture, you can never be asked to write up any t-accounts in the exam. Sometimes a t-account in your scrap workings may help you, but that is certainly not the case here 🙂 )
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