- 10 Marks
PSAF – L2 – Q10.1 – Revaluation of Assets
Question
Kumawu District Assembly revalues its buildings and decides to incorporate the revaluation into the financial statements. The following information has been made available:
a) Extract from the statement of financial position at 31 December 2023
| Buildings at cost | GHc’000 |
|---|---|
| Buildings at cost | 300,000 |
| Accumulated Depreciation | (93,000) |
| Carrying amount | 207,000 |
b) Depreciation has been provided at 2% per annum on a straight-line method.
c) The building is revalued at 30 June 2024 at GHc276 million. There has been no change in the remaining estimated future life of the buildings.
Required:
Show the relevant extracts from the financial statements at 31 December 2024.
Answer
To incorporate the revaluation of the buildings into the financial statements of Kumawu District Assembly, we need to calculate the impact of the revaluation on both the statement of financial position and the statement of financial performance for the year ended 31 December 2024.
First, there is the need to determine the carrying amount of the asset at the date of the revaluation. The carrying amount of the building is shown below.
| Building | GHc’000 |
|---|---|
| Cost at 1/1/2023 | 300,000 |
| Depreciation | |
| Accumulated depreciation | 93,000 |
| Depreciation charge (300,000 × 0.02 × 0.5) | 3,000 |
| Carrying amount at revaluation | 207,000 |
Second step is to determine the revaluation outcome. In this case, the building was revalued to GHc276 million from a carrying amount of GHc207 million. Therefore, the revaluation outcome is a surplus of GHc69 million (GHc276 million – GHc207 million). This revaluation surplus will be transferred to a revaluation reserve under equity in the statement of financial position.
Further charge depreciation for the second half of the year which will be as follows.
| Building | GHc’000 |
|---|---|
| Revaluation at 30/6/2024 | 276,000 |
| Depreciation | |
| Depreciation charge (276,000 × 0.02 × 0.5) | 2,760 |
| Carrying amount at revaluation | 273,240 |
So the total depreciation expense of the period will be GHc5,760,000 (which is GHc3,000,000 plus GHc2,760,000).
The financial statement extracts are as follows:
Statement of financial position (extract) as at 31 December 2024
| Assets | GHc’000 |
|---|---|
| Buildings (Revalued) | 276,000 |
| Accumulated depreciation | (2,760) |
| Carrying amount | 273,240 |
| Equity | GHc’000 |
|---|---|
| Revaluation reserve | 69,000 |
Statement of financial performance (extract) for the year ended 31 December 2024
| Expenses | GHc’000 |
|---|---|
| Consumption of fixed capital (3,000 + 2,760) | 5,760 |
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