ExpertEasy2 marksMultiple Choice
ACCA · Question 03 · Accounting for Transactions
SECTION A
Titanium Forge Co, a heavy manufacturing firm, revalued its main factory building for the first time on 31 December 20X4. The building had a carrying amount of $4,500,000 and was revalued to $5,200,000. The building originally cost $6,000,000.
What is the correct accounting entry to record this revaluation under IAS 16 Property, Plant and Equipment?
SECTION A
Titanium Forge Co, a heavy manufacturing firm, revalued its main factory building for the first time on 31 December 20X4. The building had a carrying amount of $4,500,000 and was revalued to $5,200,000. The building originally cost $6,000,000.
What is the correct accounting entry to record this revaluation under IAS 16 Property, Plant and Equipment?
Answer options:
A.
Debit Building $700,000; Credit Profit or Loss $700,000
B.
Debit Building/Accumulated Depreciation $700,000; Credit Revaluation Surplus (OCI) $700,000
C.
Debit Building $1,500,000; Credit Revaluation Surplus (OCI) $1,500,000
D.
Debit Revaluation Surplus (OCI) $700,000; Credit Building $700,000
How to approach this question
Compare the revalued amount to the carrying amount at the date of revaluation. Determine if it's a first-time gain or loss.
Full Answer
B.Debit Building/Accumulated Depreciation $700,000; Credit Revaluation Surplus (OCI) $700,000✓ Correct
Under IAS 16, an initial revaluation increase is recognized in Other Comprehensive Income and accumulated in equity under the heading of revaluation surplus. The gain is the revalued amount ($5,200,000) less the carrying amount ($4,500,000) = $700,000.
Common mistakes
Comparing the revalued amount to the original cost instead of the carrying amount.
Practice the full ACCA FR — Financial Reporting Practice Exam 3
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