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Note On Revaluation

Home > Study Notes > Note On Revaluation
Published in: Accounting
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Solved question of revaluation

Sohail A / Sharjah

0 year of teaching experience

Qualification: M.phill Chemistry (Physical) University of the punjab Lahore M.Sc Chemistry (physical) from Punjab university lahore, B.Sc – Botany – Zoology – Chemistry and Completed B.Ed. (Bachelors of Education)

Teaches: Biology, Chemistry, Physics, Science

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  1. Answer 1 Option (b). (1) Answer 2 Rs.562,500 (Depreciation = Rs.562,500). (1) Answer 3 Rs. 4 million can be currently obtained from disposal of 6 year old similar machine Answer 4 Charge to profit or loss account Answer 5 Caribbean Limited Notes to financial statement For the year ended 31 December 2015 Note No. 12: Property Plant and Equipment (1) Grtßs Carrying Amount Balance 01 _ January 2015 *Addition •Tr an sfer *Revaluation Surplus/(Rev. Loss) • Disposal Balance 31 _December 2015 Accumulated depreciation Balance 01 _ January 2015 *Depreciation for the year (WA) •Tr an sfer • Disposal Balance 31 -December 2015 WDV 31.December 2015 WDV 31.December 2014 Measurement basis Depæciation method Depleciation rate/useful life Land 500,000 5) 650,000 650,000 500,000 Revaluation N/A N/A Buildings (620.000) 720,000 1,100.000 600.000'0.5' 20,000 (620,000) (OSB 400,000 Revaluation S.L 50 years Plant & 340,500 17,250 (80.000) 277,750 125,900 50,775 (57.000) 119,675 158,075 214,600 Cost SL 25% Computer 617,800 617,800 505,800 44,800 550,600 67 112.000 Cost RBM 40% 2,458.300 17,250 (620,000) 870,000 (80,000) 1,231.700 115,575 (620,000) (57,000) 670,275 12.1 12.2 12.3 12.4 Land and buildings have been revalued during the year 2015. (0.5) Had there been no revaluation, the land and building would have shown following values (The corresponding historical cost infonnation is as follows). Cost Accumulation Depreciation Net book value Movement in revaluation surplus Opening balance Add: Arose during the year Less: Transferred to retained earnings Closing balance Change in estimate (Marks Land 500,000 500,000 (Marks 09 (Marks Buildings 1,000,000 (620.000) 380,000 870,000 870,000 During the year, method of depreciation on computers is changed from straight line to reducing balance method. The effect of change in estimate is as follows: Increase in current period profits — Rs. 61 ,225 (W-4)
  2. Decrease in future period profits — IQs. 61.225 (W-4) No marks allocated to 12.3; 12.4 and 12.5 as these sub-notes are not yet discussed in class WORKINGS (W-1) Depreciation charges for the year 2015 (Marks 2) Buildings (W-3) Plant and machinery: On opening plant (((340,500 — 80,000) Addition (17,250 x x g ) Computer equipment 1 12,000 x 40% Cost of new machine (Marks 0.5) - (125,900 - 57,000)) x 25%) 20.000 47,900 2875 Rs.44,800 Purchase price (20,000 - 3,000 - 1,000) Delivery costs Installation costs (W-3) (Mark 1.5) Date 31.12.14 31.12.15 31.12.15 31.12.15 31.12.15 Date 31.12.14 31.12.15 31.12.15 31.12.15 31.12.15 Description WDV / Cost Depreciation WDV Revaluation sulplus (bal.) Revalued amount Description WDV (1,000-600) Depreciation (1 ,OOO / 50) WDV Revaluation sumlus (bal.) Revalued amount Land 500 500 150 650 Building (20) 380 720 1,100 16,000 500 750 17,250 R/Surplus 150 150 R/Surplus 720 720 Effect on profits due to change in estimate: Current year Depæciation Future years Depleciation IQs. 61,225 (112,000 - 50,775) Decrease: IQs. 61,225 Increase: Profi ts Profi ts Rs. 61 ,225 Incæ-ase Rs. 61 ,225 Decrease
  3. Answer 6 Orchid Limited Notes to Financial statements For the year ended 31 December 2017 10. Property, plant and equipment Cost Opening Additions Revaluation (W-2) Disposal Transfer of Acc. Depreciation Closing Acc. Depreciation & Impairment Opening Dep. For the year (W-2.1) : (W-1) Disposal Impairment (W-1) Transfer to msset account Closing Carrying amount as on 31/12/2016 10.1 Measurement Basis Depreciation Method Dep. Rate/Useful life 2017 Building 700 (108) (87) (42) 463 24 22.5 (4.5) (42) Building Plant 475 475 115 36 (151) 324 Building 700 700 24 676 2016 Plant 475 475 19 19 77 _1_115)_ Revaluation model Straight line 30 years Plant Cost model Reducing balance 10.2 The last revaluation was performed on 31 December 2017 by Shabbir Associates, an independent firm of valuers. 10.3 Movement in revaluation surplus: Opening Arose during the year Transferred / adjusted WDV as on 31.12.15 Cost Less: Accumulated depreciation WDV as on 31.12.15 22.4+3.3+90.3 10.4 Had there been no revaluation, the buildings would have appeared ts follows (600-66) 600—66 2017 116 (1161 2017 534 (53.4) 480.6 2016 120 116 2016 (40) 560
  4. Change in estimate sub-note was not required in the question, but this is included here for understanding Of students. This sub-note shall be discussed in coming lectures. 10.6 Change in Estimate: During the year 20] 7, depreciation method of plant was changed from straight line to reducing balance. The new depreciation rate would be 10%. Due to above change, Depreciation for the year has increased whereas, Profit for the year has decreased by Rs. 20 million. {36(360 X 10%) — 16 (30")) (W-1) Plant W.D.V 1/1/2015 31/12/2015 31/12/2016 31/12/2016 31/12/2016 31/12/2017 Cost Dep. (475/25) Dep. (475/25) W.D.v Impairment Loss Recoverable amount Dep WI)v (W-2) Revaluation schedule Date 1/1/15 31/12/2015 31/12/2015 31/12/2015 31/12/2015 31/12/2016 31/12/2016 30/06/2017 30/06/2017 31/12/2017 31/12/2017 31/12/2017 31/12/2017 Description Cost Dep. (600/30) W.D.V Rev. surplus Revalued amount Dep (700/29) WDV Dep. Of 1 building for 6 months (W-3) WDV of I building (W—4) Depreciation of remaining buildings (W-5) WDV Revaluation loss Revalued Amount Building (20) 580 120 700 (24) 676 (1.5) (82.5) (21) 571 (108) 463 Rev. surplus 120 120 116 (0.4) (22) (3.3) 90.3 (90.3) (W-2.1) Total Depreciation on buildings for the year 2017 Dep. Of I building for 6 months (W-3) Depreciation of remaining buildings (W-5) (W-3) Depreciation of 1 building for 6 months Cost — 87/29 x 6/12 = 1.5 (W-4) WDV of 1 building B alance Surplus Acc. Depreciation (87/29 x 1.5) : (23.2/29 x 1.5) - (23.2)/29 x 6/12 = 0.4 Rs. 'millions' Building Cost 87 (4.5) 82.5 (W-5) Depreciation of remaining buildings for the year Rs. 'millions' 475 (19) (19) 437 (77) 360 (36) _324 SOCI (P/l) (17.7) (17.7) 1.5 21 22.5 Rs. millions' Surplus 23.2 (1.2) 22 res. 'millions'
  5. Opening Disposal Balance Remaining Life Building cost 700 (87) 613 21 Surplus 120 (23.2) 96.8 *29 3.3

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