Question

The Cassidy Corporation, a publicly accountable entity, made an accounting policy choice to use the revaluation model for land and buildings. Cassidy has only one parcel of land and one building. Both were purchased on December 31, 20x0. The building has a useful life of 30 years with no residual value. Details on original cost and fair values follows:

  Land Building

Original Cost (Dec 31, 20x0) $300,000 $15,00,000

Fair Values -

Dec 31,20x2 340,000 1,350,000   

Dec 31, 20x5 280,000 1,275,000

Dec 31, 20x7 330,000 1,200,000

Required-

a.Prepare all journal entries related to the land revaluation for the years ended December 31, 20x2, 20x5 and 20x7.

b.Prepare all journal entries related to the building depreciation and revaluation for all years between December 31, 20x1 and 20x7.

Answer 1

As per US GAAP, if an impairment loss is recognized, the adjusted carrying amount of a fixed asset becomes its new cost basis, which shall be depreciated over the remaining useful life of that asset. At the same time, restoration of a previously recognized impairment loss is prohibited
Land revaluation
On Dec 31, 20x2
There will be no journal entry to be passed, since as per US GAAP, no upward revaluation is allowed to be accounted
On Dec 31, 20x5	Debit	Credit
Impairment Loss a/c..........Dr	20,000
To, Accumulated Impairment Loss		20,000
On Dec 31, 20x7
There will be no journal entry to be passed, since as per US GAAP, no upward revaluation is allowed to be accounted
Building Depreciation and Revaluation
Revaluation Entry for 20x2	Debit	Credit
Impairment Loss a/c..........Dr	50,000
To, Accumulated Impairment Loss		50,000
No revaluation entries will be passed for 20x5 & 20x7 as there is an upward revaluation which cannot be recorded in these years
Depreciation Entry 31st Dec 20x1
Depreciation on Building a/c.......Dr	50,000
To, Bulding Account		50,000
Depreciation Entry 31st Dec 20x2
Depreciation on Building a/c.......Dr	50,000
To, Bulding Account		50,000
Depreciation Entry 31st Dec 20x3
Depreciation on Building a/c.......Dr	48214
To, Bulding Account		48214
Depreciation Entry 31st Dec 20x4
Depreciation on Building a/c.......Dr	48214
To, Bulding Account		48214
Depreciation Entry 31st Dec 20x5
Depreciation on Building a/c.......Dr	48214
To, Bulding Account		48214
Depreciation Entry 31st Dec 20x6
Depreciation on Building a/c.......Dr	48214
To, Bulding Account		48214
Depreciation Entry 31st Dec 20x7
Depreciation on Building a/c.......Dr	48214
To, Bulding Account		48214
Depreciation Calculation
	Original cost	Depreciation	Depreciated value
December 20x0	15,00,000	-	15,00,000
December 20x1	15,00,000	50,000	14,50,000
December 20x2	14,50,000	50,000	14,00,000
December 20x3	13,50,000	48,214	13,01,786
December 20x4	13,01,786	48,214	12,53,571
December 20x5	12,53,571	48,214	12,05,357
December 20x6	12,05,357	48,214	11,57,143
December 20x7	11,57,143	48,214	11,08,929
Note-
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