Question

Use this information for the next 4 questions

On December 31, Year 1, an entity revalued its machinery. On that date, the entity gathered the following information to aid the revaluation:

Historical cost                                    $500,000

Accumulated depreciation             140,000

Fair value                                              420,000

Question 1: How much is the revaluation gain or loss?

Question 2: Was the previous gain or loss reported in the income statement or other comprehensive income?

In year 2 the carrying value is $340,000 and the fair value is $200,000. Question 3: How much of the loss will be reported in other comprehensive income? Record a negative number.   

In year 2 the carrying value is $340,000 and the fair value is $200,000. Question 4: How much of the loss will be reported in the income statment? Record a negative number.  

Answer 1

Notes : IFRS16 allows valuation of Fixed uder cost model and revaluation model. The asset is inititally recognised at Cost and subsequantly at each valuation date it is valued at fair value and if fair value is higher than cost, the higher value is recorded as "revaluation surplus" and revaluatoin surplus is accounted under "comprehensive income"

As subsequant date if there is reduction in the fair value of asset, to the extent of amount credited earlier to revaluation surplus, amount will be debited to revaluation surplus and any balance will be debited to P&L as "impairement loss"

Question 1: How much is the revaluation gain or loss?

Ans : Revaluation gain 60,000 (420,000-(500,000-140,000)

Question 2: Was the previous gain or loss reported in the income statement or other comprehensive income?

Ans : Comprehensive Income

Question 3: In year 2 the carrying value is $340,000 and the fair value is $200,000. How much of the loss will be reported in other comprehensive income? Record a negative number

Answer : To the extent of Revaluation surplus previously accounted i.e. $ -60,000

Question 4: In year 2 the carrying value is $340,000 and the fair value is $200,000. How much of the loss will be reported in the income statment? Record a negative number

Answer : The remaining loss after debited to comprehensive income will be debited as "impairment loss" by debited to income statement i.e. 80,000 (Total Loss : 140,000 - 60,000 already debited to comprehensive income)