Property purchased for ?$3 million was revalued on 1 July 2017 to ?$4.5 million. Accumulated depreciation...

Property purchased for ?$3 million was revalued on 1 July 2017 to ?$4.5 million. Accumulated depreciation at the time of revaluation was $ 500 000. The property? hadn't previously been revalued. At the time of the? revaluation, the property was expected to have a further useful life of 25 years with no residual value. On 1 July 2021 the property was again? revalued, to ?$3.3 million. Requirement Show the journal entries to? record: (a) the initial? revaluation, (b) depreciation for each of the years ended 30 June 2018 to 2021 and? (c) the revaluation at 30 June 2021. ?(d) Use the student to show work button. Show your workings for? item? (a)? (b) and? (c) Justify your workings using the appropriate accounting standards

Expert Solution

Question (a)

On 1 July 2017 the Carrying Value of the asset is $3M - $0.5M = $2.5M

The revalued amount is $4.5M. Hence a difference of $4.5M - $2.5M = $2M needs to be accounted for.

As per IAS 16, revaluation surplues is not 'normal gain' and should be credited to Other Comprehensive income account:

		Debit	Credit
01-Jul-17	Property	2M
	Revaluation Surplus		2M

01-Jul-17	Revaluation Surplus	2M
	Other Comprehensive Income		2M

Question (b)

The deprecation after a revaluation should be based on the revalued amount. Hence $4.5M should be depreciated over 25 years.

Annual Depreciation = 4.5/25 = 0.18M

Hence for the 4 years we would pass the following Journal entries:

		Debit	Credit
01-Jul-18	Depreciation Expenses	0.18M
	Accumalated Depreciation		0.18M

01-Jul-19	Depreciation Expenses	0.18M
	Accumalated Depreciation		0.18M

01-Jul-20	Depreciation Expenses	0.18M
	Accumalated Depreciation		0.18M

01-Jul-21	Depreciation Expenses	0.18M
	Accumalated Depreciation		0.18M

Question (c)

At the time of the second revaluation the value of the property is $4.5M - 4 years of Depreciation

= $4.5M - (0.18MX4) = $3.78M

Hence there is a Revaluation loss of $3.78 - $3.3M = $0.48M. The entry to be recorded for this revaluation is:

		Debit	Credit
01-Jul-21	Revaluation Surplus	0.48M
	Property		0.48M

01-Jul-21	Other Comprehensive Income	0.48M
	Revaluation Surplus		0.48M

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