Question

Emily Co chooses to revalue property in accordance with IAS 16. On 31 December 20X1, its head office building had a fair value of $30m when it is measured in the financial statements at historical cost of $25m with $4.5m of accumulated depreciation charged against it. Which of the following statements is true?

A revaluation gain of $5m should be recorded through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss

A revaluation gain of $5m should be recorded through profit or loss

A revaluation gain of $9.5m should be recorded through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss

A revaluation gain of $9.5m should be recorded through profit or loss

Answer 1

A revaluation gain of $9.5m should be recorded through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss is the correct answer.

Explanation:

IAS 16 states that whenever there is revaluation gain on any property, it must be recognised through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss unless they reverse a previous revaluation decrease and whenever there is revaluation loss it is recognised through profit and loss account unless they reverse a previous revaluation increase.

In the given case scenario, the carrying value of property before revaluation = Historical Cost - Accumulated Depreciation = $25m - $4.5m = $20.5M

Fair Value of Property = $30M

Hence, the revalution gain = $30M - $20.5M = $9.5M and as explained above it will be recognized through other comprehensive income, grouped with other items that will not subsequently be reclassified to profit or loss