In: Accounting
Basie Ltd purchased a building at a cost of $1,200,000 on 30 June 2018. The building is depreciated on a straight-line basis over 10 years with zero residual value. Basie Ltd values the building using the Revaluation (Fair Value) Model. On 30 June 2019, Basie Ltd revalued the building to its fair value of $1,350,000.
a) Provide the journal entries to record the revaluation of the building on 30 June 2019. Show all workings necessary to determine your answer.
In the revaluation model the asset is initially recorded at cost like the cost model Subsequently the carrying value is adjusted for any change in asset value. The gain on upward revaluation is not recorded in income statement but credited to revaluation reserves (shareholders equity).
Depreciation subsequent to the revlauation will be based on the new carrying value.
Assumption - The financial year is from 1st July - 30th June
a. Cost of building (30th June 2018) $1,200,000
b Useful Life(yrs) 10
c Depreciation per year $120,000
d Carrying Value (30th June 2019) $1,080,000
e Revaued on 30th June 2019 $1,350,000
f Upward Revaluation(d-e) $270000
Joural entries
30the June 2018 Building A/c Dr $1,200,000
To Bank $1,200,000
(Being cost of building purchased capitalized)
30th June 2019 Depreciation A/c Dr $120,000
To Building $120,000
(Being depreciation charges at the end of the year 1 recorded)
30th June 2019 Buildin A/c Dr $270,000
To Revaluation Surplus $270,000
(Being upward revaluation of building recorded)
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