Question

Question 2

As at 1 July 2015, Top Ltd has an asset that has a cost of $100000 and accumulated depreciation of $20000. Top Ltd decided on 1 July 2015 that the asset should be revalued to $120000. The remaining useful life of the asset is eight years, after which time it will have no residual value. Top Ltd use straight line method to allocate depreciation for the asset.

Required:

Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset using the net-amount method for the year ended 30 June 2016.

Answer 1

Gain from upward revaluation of an asset is not a realized gain, hence it is recorded in statement of profit and loss.

It should be shown as revaluation surplus under shareholders' equity section of balance sheet.

Under net method, accumulated depreciation is eliminated with revalued amount and going forward accumulated depreciation is recorded on the revalued amount.

Cost of asset	$       1,00,000
Accumulated depreciation	$           20,000
Carrying amount	$           80,000
Revalued amount	$       1,20,000
Carrying amount	$           80,000
Revaluation surplus	$           40,000
Depreciation method	Straight line
Revalued amount	$       1,20,000
Remaining life	8 years
Depreciation on revalued asset(120000/8)	$           15,000
Depreciation based on original asset(100000/10)	$           10,000
Additional depreciation	$             5,000

01-Jul-15	Asset	$       20,000
	Accumulated depreciation	$       20,000
	Revaluation surplus		$       40,000
	(To account upward revaluation)
30-Jun-16	Depreciation	$       15,000
	Accumulated depreciation		$       15,000
	(Depreciation accounted)
30-Jun-16	Retained earnings	$         5,000
	Revaluation surplus		$         5,000
	(To record adjustment of revaluation surplus)