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Revaluation reserve

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › Revaluation reserve

  • This topic has 3 replies, 2 voices, and was last updated 10 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • August 23, 2014 at 3:20 pm #192022
    zemsk
    Participant
    • Topics: 5
    • Replies: 7
    • ☆

    Dear Sir,

    i review questions from bpp (i-pass) and have a difficulty with the following:

    1)At 31 December 20X3 Q, a LLC, owned a building that had cost $800.000 on 1 January 20W4.It was being depreciated at 2% per year. On 31 December 20X3 a revaluation to $ 1.000.000 was recognized. At this date the building had a remaining useful life of 40 years.

    What is a balance on the revaluation surplus at 31 December 20X3 and the depreciation charge in the P&L for the year ended 31 December 20X4?
    Answer:
    Depreciation charge = $2500
    Revaluation surplus = (1.000.000 – (800.000 –(800.000 x 2%x10)) = 360.000

    I don’t understand why is 10 years for depreciation.

    2)Banter Co purchased an office building on 1 January 20X1. The building cost was $1.600.000 and this was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual value. The building was revalued to $2.250.000 on 1 January 20X6. The useful life was not revised. The company’s financial year end ends on 31 December.
    What is the balance on the revaluation reserve at 31 December 20X6?
    Answer:
    $810.000 – $18.000 = $ 792.000

    There is no word about excess depreciation, is it by default that we should transfer it to ret.earnings ?

    3)If we deal with the disposal of a revalued asset:
    The revaluation reserve will be always transferred to realized profits, but this will not be reported as a profit in the P&L.

    Is it correct?

    August 23, 2014 at 3:51 pm #192035
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    1) Because it was being depreciated at 2% per year, it means its life was 100/2 = 50 years. Since it has a remaining life of 40 years, it must mean that they have had it for 50 – 40 = 10 years.

    2) Yes – by default the excess should be transferred from revaluation reserve to retained earnings.

    3) True 🙂 (and remember we now do not call it P&L – we call it Statement of profit or loss 🙂 )

    August 23, 2014 at 4:09 pm #192040
    zemsk
    Participant
    • Topics: 5
    • Replies: 7
    • ☆

    thank you so much,
    yes, will bear in mind 😉

    August 23, 2014 at 5:41 pm #192053
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    You are welcome 🙂

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