Question

Scoop is a main "crew" in Bob the Builder and it was purchased on January 1, Year 10 for $100,000. [Please use "equipment" account for "Scoop" in your journal entry.] Bob has been depreciating Scoop on a straight-line basis over a 25-year period with zero residual value. The appraisal carried out on December, Year 14 determined that the fair value of scoop was $76，000 and the appraisal carried out on December, Year 19 determined that the fair value of scoop was $68，400 . Bob adopts revaluation model for Scoop and he uses proportional method. Please note that Bob makes the revaluation-related journal entry after he records depreciation expense as in your lecture note example. Also note that Bob does not adopt any partial-year depreciation. Have fun!

(1) Prepare the journal entry that reflects the revaluation on December, Year 13.

(2) Prepare the journal entry that reflects the revaluation on December, Year 17.

Answer 1

Required 1

Calculation of the amount of Accumulated Depreciation at the end of Year 14

Year	Depreciation
10	$           4,000.00
11	$           4,000.00
12	$           4,000.00
13	$           4,000.00
14	$           4,000.00
Total	$         20,000.00

Thus Carrying value at the end of year 14 = $100,000 - $20,000 = $80,000

Fair Value at the end of the year 14  = $76,000

Thus calculation of the amount of revaluation surplus / deficit would be as follows:

Journal Entry to record the revaluation at Year 14 would be:

Accumulated Depreciation	$1,000
Revaluation Deficit	$4,000
Equipment		$5,000

Required 2

Calculation of the amount of Accumulated Depreciation at the end of Year 19

Year	Depreciation
10	$                         4,000.00
11	$                         4,000.00
12	$                         4,000.00
13	$                         4,000.00
14	$                         4,000.00
15	$                         3,800.00
16	$                         3,800.00
17	$                         3,800.00
18	$                         3,800.00
19	$                         3,800.00
Total	$                      39,000.00

Thus Carrying value at the end of year 19 = $950,000 - $39,000 = $56,000

Fair Value at the end of the year 14  = $68,400

Thus calculation of the amount of revaluation surplus / deficit would be as follows:

Journal Entry to record the revaluation at Year 19 would be:

Equipment	$21,036
Accumulated Depreciation		$8,636
Revaluation Deficit		$4,000
Revlaution Surplus		$8,400

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