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Revaluation surplus

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Revaluation surplus

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by P2-D2.
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    Posts
  • August 20, 2021 at 11:45 am #632323
    Aroona
    Member
    • Topics: 8
    • Replies: 7
    • ☆

    This is a sum from one of the technical articles
    A property was purchased on 1 January 20X0 for $2m (estimated depreciable amount was $1m and it had a useful life 50 years). Annual depreciation of $20,000 was charged from 20X0 to 20X4 inclusive and on 1 January 20X5 the carrying amount of the property was $1.9m. The property was revalued to $2.8m on 1 January 20X5 (estimated depreciable amount was $1.35m and the estimated useful life was unchanged). Show the treatment of the revaluation surplus and compute the revised annual depreciation charge.
    SOLUTION:
    Revaluation surplus = $900,000 ($2.8m – $1.9m)
    Depreciable amount of the property is $1.35m
    The remaining estimated useful life 45 years
    The depreciation charge from 20X5 onwards would be $30,000 ($1.35m x 1/45).

    Im not quite clear about the treatment of $2.8m(i.e they’ve ignored this amount) and the difference =1.45m(2.8m-1.35m),where does it go?

    Thank you for taking the time to read my question 🙂

    August 29, 2021 at 10:35 am #633338
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6453
    • ☆☆☆☆☆

    Hi,

    The $2.8m is the amount the asset is revalued to, so by increasing the value by $900,000 to $2.8m gives the new value of the asset on the SFP. Effectively they have DR Asset $900,000 CR Revaluation Surplus $900,000. It has not been ignored.

    The depreciable amount of $1.35m does not go anywhere. This is essentially the revalued amount of $2.8m less the residual value of the asset to give the $1.35m that is then used to calculate the depreciation per annum, i.e. $1.35m/45 years.

    Hope that clears it up for you.

    Thanks

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