Question

Question 2

The extracts from the trial balance of Tall Ltd as at 31 December 2019 are: K’000 K’000 Land (K5 million) and buildings – at cost 55,000 Plant and equipment – at cost 58,500 Accumulated depreciation at 1 January 2018 : buildings 20,000 : plant and equipment 34,500 The following notes are relevant: Non-current assets: The price of property has increased significantly in recent years and on 1 January 2019, the directors decided to revalue the land and buildings. The directors accepted the report of an independent surveyor who valued the land at K8 million and the buildings at K39 million on that date. The remaining life of the buildings at 1 January 2019 was 15 years. Tall Ltd does not make an annual transfer to retained profits to reflect the realisation of the revaluation gain. Plant and equipment is depreciated at 12½% per annum using the reducing balance method. No depreciation has yet been charged on any non-current asset for the year ended 31 December 2019. Depreciation is charged to cost of sales.

Required:

Prepare extracts from the statement of profit or loss and other comprehensive income for Tall Ltd for the year ended 31 December 2019 and from the statement of financial position as at the same date with regards property, plant and equipment.

Answer 1

Tall Ltd.
No.	Description	Amount (in K’000)	Amount (in K’000)
1.	Revaluation of Land: Cost of Land Add: Revaluation Surplus Total Cost of Land	5,000 3,000	8,000
2.	Revaluation of Building & Calculation of Depreciation: Cost of Building Less: Accumulated Depreciation Gross Cost of Building Add: Revaluation Surplus Net Cost of Building Depreciation for the Year 2019 on Building (39,000 ÷ 15)	50,000 20,000 30,000 9,000	39,000 2,600
3.	Net Cost of Plant and Equipment & Calculation of Depreciation: Cost of Plant and Equipment Less: Accumulated Depreciation Net Cost of Plant and Equipment Depreciation for the Year 2019 on Plant and Equipment; (24,000 × 12.5%)	58,500 34,500	24,000 3,000
4.	Statement of Profit or Loss (Extract):
	Operating Expenses:
i.	Depreciation on Building		2,600
ii.	Depreciation on Plant and Equipment		3,000
5.	Statement of Comprehensive Income (Extract):
i.	Re-valuation Reserve (3,000 + 9,000)		12,000
6.	Statement of Financial Position (Extract):
	A.–
i.	Cost of Land & Building	55,000
ii.	Add: Revaluations during the year	12,000
iii.	Cost of Land & Building at Fair Value	67,000
iv.	Less: Accumulated Depreciations (20,000 + 2,600)	22,600
v.	Net Cost of Land & Building		44,400
	B.–
i.	Cost of Plant and Equipment	58,500
ii.	Less: Accumulated Depreciations	3,000
iii.	Net Cost of Plant and Equipment		55,500

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