ExpertMedium2 marksMultiple Choice
ACCA · Question 10 · Recording Transactions: Tangible Assets
Section A
Titanium Smelting Co purchased a factory on 1 January 20X1 for $2,000,000. It had an estimated useful life of 40 years and zero residual value. On 31 December 20X5, the factory was revalued to $2,400,000.
What is the balance on the revaluation surplus account immediately after the revaluation?
Section A
Titanium Smelting Co purchased a factory on 1 January 20X1 for $2,000,000. It had an estimated useful life of 40 years and zero residual value. On 31 December 20X5, the factory was revalued to $2,400,000.
What is the balance on the revaluation surplus account immediately after the revaluation?
Answer options:
A.
$400,000
B.
$650,000
C.
$250,000
D.
$1,750,000
How to approach this question
Calculate the carrying amount at the date of revaluation (Cost - Accumulated Depreciation). Subtract the carrying amount from the revalued amount to find the surplus.
Full Answer
B.$650,000✓ Correct
Annual depreciation = $2,000,000 / 40 years = $50,000.
Accumulated depreciation for 5 years (20X1 to 20X5) = $50,000 × 5 = $250,000.
Carrying amount at 31 Dec 20X5 = $2,000,000 - $250,000 = $1,750,000.
Revaluation surplus = Revalued amount ($2,400,000) - Carrying amount ($1,750,000) = $650,000.
Common mistakes
Comparing the revalued amount to the original cost instead of the carrying amount.
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