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- October 18, 2016 at 3:31 pm #344730
Dear Sir
I hope this message finds you well.
I attempted the following question:
Carter vacated an office building and let it out to a third party on 30 June 20X8.
The building had an original cost of $900,000 on 1 January 20X0 and was being depreciated over 50 years.
It was judged to have a fair value on 30 June 20X8 of $950,000.
At the year end date of 31 December 20X8 the fair value of the building was estimated at $1.2 million.
Carter uses the fair value model for investment property.
What amount will be shown in revaluation surplus at 31 December 20X8 in respect of this building?I got it wrong, but I wanted to try to create a rule for myself.
The rule would go:
Cost of purchase
(depreciation)
=Carrying value.(the above)Carrying value
+Revaluation Surplus
= Fair value for building at 30/6/x8 or ‘A’In this case A is the Fair value at 30/6/X8 represented by the 950,000 and not the Fair value at the end of the year at 1.2M, which means the answer is 203,000
However, I was having difficulty on deciding how best to differentiate between the identity of the two values; 1.2M and 0.95M.
I was wrong in using the 1..2M figure. But would it be fair to call the 0.95M value the ‘our interest’ or ‘change financial statement’ value ?so the 950,000 becomes, ‘Fair Value of the building at date at which we change the financial statement into which we enter the figure ?
I appreciate that Carter let out the building to another company, so there is still some interest in the building, but in terms of financial statements, is this the point at which we switch from other comprehensive income to Statement of prof/loss?
Am i wrong again? Is there a ‘real’ term or name for what I’m trying to accomplish here in differentiating the two values?Can you help solidify this idea or have i stopped making sense?
all the best 🙂
PS: I’m looking for what to ‘call’ this number. everything else in ‘my rule’ has a name, but ‘fair value at vague date’ isnt a very good name in my opinion
October 18, 2016 at 4:14 pm #344745Why not simply remember it as “Fair value at date of re-classification”?
Then you have the easy way to remember it as “Fvadorc” and a fvadorc is the name given by one of the remote hill tribes in Papua New Guinea to a mythical beast said to steal away the children in the middle of the night if they have been naughty during the day
So $950,000 is a fvadorc
OK?
October 18, 2016 at 4:21 pm #344748Dear sir
I dont know why I didnt think of it as being the ‘Fair value at date of reclassification’.
thanks for the help and the trivia !all the best
PS
I’m disappointed that the fvadorc is fictional! but it IS memorable 😀October 18, 2016 at 5:05 pm #344756No less real than Kumquat, Sasquatch, Chupacapra, the Yeti and the Loch Ness Monster
October 15, 2018 at 1:03 pm #478447Good day,
I just attempted this question and I don’t understand why the fair value at 30.06.x8 (950,000) is used instead of at the date of the year-end (1,200)?
The answer in the question states that: “The increase of (1,200-950) = $250,000 arising between 30.06.x8 and 31.12.x8 will be credited to profit or loss. So why is the $203,000 taken to revaluation surplus?
Thank you for your help
October 15, 2018 at 1:22 pm #478481Sorry I was not being very bright. I see they re-classified the type of asset. Sorry about that.
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