Question

E11.24 (LO5) (Revaluation Accounting) Croatia Company purchased land in

2019 for $300,000. The land

'

s fair value at the end of 2019 is $320,000; at

the end of 2020, $280,000; and at the end of 2021, $305,000. Assume that

Croatia chooses to use revaluation accounting to account for its land.

Instructions

Prepare the journal entries to record the land using revaluation accounting for

2019

–

2021.

Answer 1

Solution;

Journal Entries in the Books of Croatia Company:

2019

Date	Account Titles and Explanation	Debit	Credit
2019	Land	$        300,000
	Cash		$        300,000
	(Being land purchased)
2019	Land	$          20,000
	Revaluation Surplus		$          20,000
	( Being land revalued)

2020

Date	Account Titles and Explanation	Debit	Credit
2020	Revaluation Surplus	$          20,000
	Impairment losses	$          20,000
	Land		$          40,000
	( Being land revalued)

2021

Date	Account Titles and Explanation	Debit	Credit
2021	Land	$            5,000
	Revaluation Surplus		$            5,000
	( Being land revalued)

Notes:

1) If an asset is revalued, the increase in the asset value will be credited to revaluation surplus. Revaluation surplus account will be adjusted with decrease in value of asset or else it will maintain till the asset is sold and then credited to retained earnings under equity section.

2) If an asset is revalued, the decrease in the asset will be first adjusted to revaluation surplus (if any) and then transfer remaining amount to impairment loss account and shows that impairment loss under income statement.