ExpertHard2 marksMultiple Choice
ACCA · Question 14 · Recording Transactions and Events
A real estate company owns a building that originally cost $500,000 and has accumulated depreciation of $100,000. The company decides to revalue the building to its current market value of $650,000. What is the correct double-entry to record this revaluation?
A real estate company owns a building that originally cost $500,000 and has accumulated depreciation of $100,000. The company decides to revalue the building to its current market value of $650,000. What is the correct double-entry to record this revaluation?
Answer options:
A.
Debit Building Cost $150,000, Credit Revaluation Surplus $150,000.
B.
Debit Building Cost $150,000, Debit Accumulated Depreciation $100,000, Credit Revaluation Surplus $250,000.
C.
Debit Building Cost $250,000, Credit Statement of Profit or Loss $250,000.
D.
Debit Revaluation Surplus $250,000, Credit Building Cost $150,000, Credit Accumulated Depreciation $100,000.
How to approach this question
Determine the carrying amount (Cost - Acc Dep). Compare to the revalued amount to find the total gain. Eliminate the accumulated depreciation and adjust the cost to the new valuation.
Full Answer
B.Debit Building Cost $150,000, Debit Accumulated Depreciation $100,000, Credit Revaluation Surplus $250,000.✓ Correct
Carrying amount = $500,000 - $100,000 = $400,000. Revalued amount = $650,000. Total revaluation gain = $250,000. The accounting entry is to eliminate the accumulated depreciation (Debit $100,000), increase the asset cost from $500,000 to $650,000 (Debit $150,000), and credit the Revaluation Surplus with the total gain ($250,000).
Common mistakes
Only adjusting the cost account and ignoring the accumulated depreciation (Option A).
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