Use the following information to answer the next two questions.
Franco Company uses IFRS and owns property, plant and equipment with a historical cost of 5,000,000 euros. At December 31, 2013, the company reported a valuation reserve of
8,565,000 euros. At December 31, 2014, the property, plant and equipment was appraised at
5,525,000 euros.
-The property, plant and equipment will be reported on the December 31, 2014 statement of financial position at
A) 5,000,000 euros.
B) 5,525,000 euros.
C) 8,565,000 euros.
D) 9,090,000 euros.

Question

Quizplus · Accepted Answer

According to IFRS, property, plant and equipment is reported at cost less accumulated depreciation and any impairment losses. In this case, the historical cost is 5,000,000 euros and there are no indications of impairment losses or accumulated depreciation. However, the property, plant and equipment was appraised at a lower amount than the historical cost, which means that a valuation reserve needs to be created for the difference. Therefore, the carrying amount of the property, plant and equipment on the December 31, 2014 statement of financial position would be 5,525,000 euros (cost of 5,000,000 euros minus valuation reserve of 8,565,000 euros plus revaluation loss of 825,000 euros).

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