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Q)Simpson purchased a property on 1 April 2006 for $240,000 (of which $60,000 related to land). The building was depreciated at a rate of 2% per annum on a straight line basis, with a proportionate charge being made in the year of purchase. On 31 December 2012 the property was revalued to $820,000 (including $360,000 relating to land).What amount should be included in Simpson’s statement of financial position at 31 December 2012 for the revaluation surplus?
a) $580,000
b) $605,200
c) $604,300
d) $304,300
Sir, in this question I get the answer a) $580000 which is obtained by finding the difference between assets of previous and revalued price (820000-240000). Also, I didn’t account for the excess in depreciation as the asset is revalued at the last date in that particular year. But the right answer is c) $604300. Can you please explain how this answer is obtained.
The revaluation surplus is the difference between the revalued amount and the net book value of the asset (not the original cost).
As at 31 December the net book value was 240,000 – (6.75 x 2% x 180,000) = 215,700.
Therefore the revaluation surplus = 820,000 – 215,700 = $604,300
Sir, in the context of the above question, I have seen that in some questions, even when the assets are revalued at the last date of a particular year, then the revaluation is considered to have happened from the beginning of that year. So, in this question, isn’t the accumulated depreciation calculated till year 6 and from then, the new depreciation calculated ?
Yes, I have also seen one or two questions in Revision Kits that do this. Their logic is that since we know we are going to revalue then when we calculate the depreciation we take it into account.
However in any exam questions do it the way we have done for the original question you posted 🙂
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