Question

ABC Corporation purchased a land for P500,000 during 2017 and chooses the revaluation model in accounting for its land . The following information relates to that land , which is the only land asset owned by the company , December 31, 2017- Fair value P520,000. Dec 31, ,2018- Fair Value P470,000. December 31 , 2019- Fair Value P510,000.a) What is the amount of unrealized gain on revaluation-land for the year 2017?_______. b.) How much is the accumulated other comprehensive income for the year 2017 to be recognized in the balance sheet?_____accumulated other comprehensive income. c) What is the amount of unrealized gain on realization -land for the year 2018?_____D.)How much is the impairement loss for the year 2018?____impairement loss. e)How much is the accumulated other comprehensive income for the year 2018 to be recognized in the balance sheet?____.f)How much is the recovery of impairement loss and revaluation gain on land for the year 2019?____.g) What is the amount of unrealized gain on revaluation-land for the year 2019?h)If the land was sold on January 10,2020 for Php 515,000 How much is the gain on sale of land?_____.i)How much is the accumulated other comprehensive income to be recycledto the retained earrnings as a result of the gain on sale of land?_____

Answer 1

As per the revaluation method, assets are carried at their fair value.

When carrying amount of asset is increased, as a result of revaluation, such increase is to be recognized in Other Comprehensive Income (OCI) and accumulated in a reserve called Revaluation Surplus.

When carrying amount of an asset is decreased, such decrease is also recognized in Profit & loss statement.

When carrying amount of an asset is increased which was previously decreased as a result of revaluation i.e. when one has already recognized loss due to revaluation in profit and loss statement; then such revaluation profit to the extent of loss already recognized, should be recognized as Revaluation gain in Profit & Loss; and the remaining gain, if any is to be treated as OCI and accumulated to Revaluation Surplus.

When carrying amount of an asset is decreased which was previously increased as a result of revaluation, i.e. there is already some amount in Revaluation Reserve; then such revaluation loss is to be recognized as loss in OCI and any amount in the Revaluation Surplus will be reversed to that extent.

If such asset is sold at a price which is higher than the carrying value,
the difference between the sales proceeds and carrying amount is recognized as profit on sale in P & L and any amount lying in Revaluation surplus as OCI is transferred to Retained Earning.

I am sure you can do the question on your own now; But i am still giving the solutions for reference. Try out the question on your own before checking the answers.

a) 20,000 unrealised gain for 2017

b) 20,000 accumulated OCI

c) - 50,000 unrealized gain for 2018

d) 30,000 impairment loss for 2018

e) 0 [20000 - 20000]

f) 10,000

g) 10,000

h) 5,000

i) 10,000