Question

Reval Inc. prepares financial statements in accordance with IFRS and has elected to use the revaluation model to account for its buildings. Reval Inc. acquired a building on January 1, 20x4 for $300,000. At that time it estimated the useful life of the building to be 60 years, with no residual value. It is now January 1, 20x4. The carrying amount of the building is $275,000 $#300,000- (5 x $5,000)). Reval Inc. has obtained an appraisal valuing the building at $385,000. 1) Show the accounting entries to recognzie the revaluation and corresponding depreciation in 20x4. 2) Show the balances on the building and revaluation surplus accounts at December 31, 20x4. On Many 1, 209×5, a major fire damages a significant part of the building. Reval inc has no insurance and the value of the damaged building is impaired, such that rhe remainder of the building has a value of only $250,000. Show the entries to reflect the impairment on January 1, 20×5"

sorry I meant on January 1

Jan 1, 20×5

Answer 1

Answer :

Reval Inc. prepares financial statements in accordance with IFRS and has elected to use the revaluation model to account for its buildings.  Reval Inc. acquired a building on January 1, 20X1 for $300,000. At that time it estimated the useful life of the building to be 60 years, with no residual value. It is now January 1, 20X8. The carrying amount of the building is $275,000 ($300,000 − (5 × $5,000)). Reval Inc. has obtained an appraisal valuing the building at $385,000.

Part I: 1. Initial revaluation

20x8
DR	Accumulated Depreciation, Building	25,000
CR	Building		25,000
	To eliminate existing accumulated depreciation
DR	Building	110,000
CR	Revaluation Surplus, Building		110,000
	(385,000-275,000)
20x8
DR	Depreciation Expense	7,000
CR	Accumulated Depreciation		7,000
	(385,000/55)=7.000
20x8	Assets
EOY	Building	385,000
	- Accumulated Depreciation	7,000
		378,000
	Equity
	Revaluation Surplus, Bldg	110,000

PART 1: 2. Entries and account balances also shown in t-accounts:

Building		Revaluation Surplus, Building
300,000
	(a)   25,000			(b)  110,000
(b) 110,000				Bal. 110,000
Bal.    385,000
Accumulated Depreciation, Building		Depreciation Expense
	25,000
(a)   25,000			( c)  7,000
	( c)  7,000		Bal.    7,000
	Bal.    7,000

Part II   Subsequent fire damages

20x9
Jan.1	Impairment Loss	18,000
	Revaluation Surplus, Building	110,000
	Accumulated Impairment Loss		18,000
	Building		110,000
20x9	Assets
Jan.1	Building	275,000
	- Accumulated Depreciation	-7,000
	- Accumulated Impairment Loss	-18,000
		250,000	(New Fair Value)
	Equity
	Revaluation Surplus, Building	0

Entries and account balances also shown in t-accounts:

Building		Revaluation Surplus, Building
385,000				110,000
	(a)  110,000		(a) 110,000
				Bal.      0
Bal.   275,000
Accumulated Depreciation, Building
	Bal.     7,000
Accumulated Impairment Loss		Impairment Loss
	(b)    18,000		(b)      18,000
	Bal.  18,000		Bal.       18,000