Revaluation Reserve

FR – L2 – Q35 – Financial Reporting Standards and Their Applications

Explain accounting treatment for revalued properties of Peak Limited, including depreciation and impairment for the year ended 31 March 20X4.

Question

Peak Limited conducts its activities from two properties, a main office in the centre and a property in the rural area where staff training is conducted. Both properties were acquired on 1 April 20X1 and had estimated lives of 25 years with no residual value. The company has a policy of carrying its land and buildings at current values. However, until recently property prices had changed for some years. On 1 October 20X3 the properties were revalued by a firm of surveyors. Details of this and the original costs are:

Land	Main office	Training premises
Cost 1 April 20X1	500	300
Valuation 1 October 20X3	700	350
Buildings	Main office	Training premises
Cost 1 April 20X1	1,200	900
Valuation 1 October 20X3	1,350	600

Required
Show the effect of the above transactions on the statement of profit or loss and statement of financial position of Peak Limited for the year ended 31 March 20X4.

Answer

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Tags: Depreciation, Financial Statements, IAS 16, Impairment, Non-current Assets, Profit or Loss, Property Valuation, Revaluation, Revaluation Reserve
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q34 – Impairment of Assets

Calculate the impact of impairment, revaluation, and sale of three machines on profit or loss, OCI, and revaluation reserve for Chantelle (Ghana) Ltd in Year 7.

Question

The following is relevant to three tangible non-current assets held by Chantelle (Ghana) Ltd.

Machine 1 was purchased on 1 January Year 1 for GH¢420,000. It had an estimated residual value of GH¢50,000 and a useful life of ten years and was being depreciated on a straight-line basis. On 1 January Year 6 Chantelle (Ghana) Ltd revalued this machine to GH¢275,000 and reassessed its total useful life as fifteen years. On 1 January Year 7 an impairment review showed machine 1’s recoverable amount to be GH¢100,000 and its remaining useful life to be five years.

Machine 2 was purchased on 1 January Year 1 for GH¢500,000. It had an estimated residual value of GH¢60,000 and a useful life of ten years and was being depreciated on a straight-line basis. On 1 January Year 7 this machine was classified as held for sale, at which time its fair value was estimated at GH¢200,000 and costs to sell at GH¢5,000. On 31 March Year 7 the machine was sold for GH¢210,000.

Machine 3 was purchased on 1 January Year 1 for GH¢600,000. In Year 1 depreciation of GH¢30,000 was charged. On 1 January Year 2 this machine was revalued to GH¢800,000 and its remaining useful life assessed as eight years. On 1 January Year 7 this machine was classified as held for sale, at which time, its fair value was estimated at GH¢550,000 and costs to sell at GH¢5,000. On 31 March Year 7 the machine was sold for GH¢550,000.

Tax is at the rate of 30%.

Required
For each machine show the effect of the above on profit or loss, other comprehensive income and revaluation reserve of Chantelle (Ghana) Ltd in Year 7. You should also show the brought forward balance on the revaluation reserve (at 1 January Year 7) in respect of machines 1 and 3.

Answer

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Tags: Depreciation, Held for Sale, IAS 36, IFRS 5, Impairment, Non-current Assets, Other Comprehensive Income, Profit or Loss, Revaluation, Revaluation Reserve
Level: Level 2

Topic: Impairment of Assets

FR – L2 – Q24 – Property, Plant and Equipment

Explain the effect of revising the useful life of a lathe on depreciation for 20X4.

Question

Moderna Solutions Limited has carried out a review of its non-current assets.
(a) A lathe was purchased 6 years ago for GH¢150,000. The plant had an estimated useful life of twelve years and a residual value of zero. Depreciation is charged on the straight line basis. On 1 January 20X4, when the asset’s carrying amount is GH¢75,000, the directors decide that the asset’s total useful life is only ten years.

Required:
Explain the effects of these changes on the depreciation for the year to 31 December 20X4.

(b) A grinder was purchased on 1 January 20X1 for GH¢100,000. The plant had an estimated useful life of ten years and a residual value of zero. Depreciation is charged on the straight line basis. On 1 January 20X4, when the asset’s carrying amount is GH¢70,000, the directors decide that it would be more appropriate to depreciate this asset using the sum of digits approach. The remaining useful life is unchanged.

Required:
Explain the effects of these changes on the depreciation for the year to 31 December 20X4.

(c) The company purchased a property some years ago for GH¢1,000,000. This was being depreciated over its life on a straight line basis. On 1 January 20X4, when the carrying amount is GH¢480,000 and twenty-four years of the useful life are remaining, the property is revalued to GH¢1,500,000. This revised value is being incorporated into the accounts.

Required:
Explain the effects of these changes on the depreciation for the year to 31 December 20X4.

Answer

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Tags: Depreciation, IAS 16, Property Plant and Equipment, Revaluation, Revaluation Reserve
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

FR – L2 – Q22 – Property, Plant and Equipment

Explain accounting treatment for revaluation and depreciation of Tema Limited's head office property under IAS 16.

Question

The following information relates to the financial statements of Accra Enterprises Limited for the year to 31 March 20X4.
The head office of Accra Enterprises Limited was acquired on 1 April 20X1 for GH¢1million. Accra Enterprises Limited intend to occupy the building for 25 years. On 31 March 20X3 it was revalued to GH¢1.15 million. On 31 March 20X4, a surplus of vacant commercial property in the area had led to a fall in property prices and the fair value was now only GH¢0.8 million.

Required
Explain the correct accounting treatment for the above (with calculations if appropriate).

Answer

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Tags: Accounting Treatment, Depreciation, Fair Value, Financial Statements, IAS 16, Non-current Assets, Property Revaluation, Revaluation Reserve
Level: Level 2

Topic: Financial Reporting Standards and Their Applications

PSAF – L2 – Q10.1 – Revaluation of Assets

Show financial statement extracts for Kumawu District Assembly's building revaluation at 31 December 2024 under IPSAS.

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

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Tags: Asset Accounting, Buildings, Depreciation, Financial Statements, IPSAS 17, Public Sector, Revaluation, Revaluation Reserve, Statement of Financial Performance, Statement of Financial Position
Level: Level 2

Topic: International Public Sector Accounting Standards

Tag (SQ): Revaluation Reserve

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FR – L2 – Q35 – Financial Reporting Standards and Their Applications

Explain accounting treatment for revalued properties of Peak Limited, including depreciation and impairment for the year ended 31 March 20X4.

FR – L2 – Q34 – Impairment of Assets

Calculate the impact of impairment, revaluation, and sale of three machines on profit or loss, OCI, and revaluation reserve for Chantelle (Ghana) Ltd in Year 7.

FR – L2 – Q24 – Property, Plant and Equipment

Explain the effect of revising the useful life of a lathe on depreciation for 20X4.

FR – L2 – Q22 – Property, Plant and Equipment

Explain accounting treatment for revaluation and depreciation of Tema Limited's head office property under IAS 16.

PSAF – L2 – Q10.1 – Revaluation of Assets

Show financial statement extracts for Kumawu District Assembly's building revaluation at 31 December 2024 under IPSAS.

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FR – L2 – Q35 – Financial Reporting Standards and Their Applications

Explain accounting treatment for revalued properties of Peak Limited, including depreciation and impairment for the year ended 31 March 20X4.

You're reporting an error for "FR – L2 – Q35 – Financial Reporting Standards and Their Applications"

FR – L2 – Q34 – Impairment of Assets

Calculate the impact of impairment, revaluation, and sale of three machines on profit or loss, OCI, and revaluation reserve for Chantelle (Ghana) Ltd in Year 7.

You're reporting an error for "FR – L2 – Q34 – Impairment of Assets"

FR – L2 – Q24 – Property, Plant and Equipment

Explain the effect of revising the useful life of a lathe on depreciation for 20X4.

You're reporting an error for "FR – L2 – Q24 – Property, Plant and Equipment"

FR – L2 – Q22 – Property, Plant and Equipment

Explain accounting treatment for revaluation and depreciation of Tema Limited's head office property under IAS 16.

You're reporting an error for "FR – L2 – Q22 – Property, Plant and Equipment"

PSAF – L2 – Q10.1 – Revaluation of Assets

Show financial statement extracts for Kumawu District Assembly's building revaluation at 31 December 2024 under IPSAS.

You're reporting an error for "PSAF – L2 – Q10.1 – Revaluation of Assets"

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