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Banjo Co. purchase a building on 30 June 20X8 for $1250,000. At acquisition, the useful life of the building was 50years. Depreciation is calculated on the straight line basis. 10years later, on 30 June 20Y8 when the carrying amount of the building was $1,000,000, the building was revaluated to $1,600,000. Banjo Co. has a policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings.
Assuming no further revaluation take place, what is the balance on the revaluation surplus at 30June 20Y9?
Answer is $585,000
I don’t know why the revaluation surplus at 30June 20Y9 doesnt less the depreciation charge in 20y9
It is the excess depreciation that is transferred from the revaluation surplus to the retained earnings.
The original depreciation before the revaluation was 1,250,000/50 = $25,000 per year.
The new depreciation on the revalued amount is 1,600,000/40 = $40,000 per year.
Therefore the excess depreciation is 40,000 – 25,000 = $15,000.
So the balance on the revaluation account is 600,000 – 15,000 = $585,000.
Johnson, a limited liability company, has provided the following information:
Building cost $780,000
Accumulated depreciation $540,000
The company decided to revalue the building to $500,000.
What is the double entry to record the above transaction?
A Dr Accumulated depreciation $540,000
Cr Building cost $280,000
Cr Revaluation reserve $260,000
B Dr Revaluation deficit $280,000
Cr Building cost $280,000
C Dr Building cost $260,000
Cr Revaluation reserve $260,000
D Dr Building cost $280,000
Dr Revaluation reserve $260,000
Cr Accumulated depreciation $540,000
Sir the answer here is A
Shouldn’t the entry be like
Dr. Non current
Dr. Accumulated depriciation
Cr. Revaluation surplus
Sir I am not able to understand the answer entry? Nor the answerWhen they revalue, the accumulated depreciation is removed (so Dr Accumulated depreciation and credit revaluation reserve), and the cost of the asset is changed to the new value (so Cr the building cost to reduce it to the new value and Dr the revaluation reserve).
And, it ‘works’. At the moment the net book value is 240,000. The new value is 500,000. So the surplus on revaluation is the difference of 260,000.
Have you watched my free lectures on this? 🙂
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