Question 1

Wallace Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 150,000 \
\hline \text { Building Accumulated Depreciation } & 70,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $60,000. Assuming this is the first year of using the revaluation model, what amount would be booked to profit and loss if Wallace chooses to use the elimination method to record the revaluation?

Accepted Answer

If Wallace chooses to use the elimination method, the carrying amount of the building will be reduced to its fair value of $60,000. This means that there will be a loss of $20,000 ($80,000 - $60,000). Since this is the first year of using the revaluation model, this loss will be booked to profit and loss as a debit. Therefore, the correct answer is A) $20,000 debit.

Question 2

Explain the accounting under the revaluation model available under IFRS.

Accepted Answer

The answer of Explain the accounting under the revaluation model...

Question 3

Wright Now Limited (WNL)was incorporated on January 1, 2020 when the sole shareholder invested $7,500,000. This is the only financing the firm needed. WNL used $1,200,000 of the funds to purchase land. WNL developed a single project from 2020-2023. Pertinent financial details of this project are set out below. At the end of 2023 the land was sold for its fair value.
 $$\begin{array} { | l | r | r | r | r | } 
\text { in thousands) } & 2020 & 2021 & 2022 & 2023 \
\hline \text { Revenue - all cash } & \$ 3,100 & \$ 3,500 & \$ 2,600 & \$ 2,400 \
\hline \text { Expenses - all cash } & 2,900 & 2,900 & 2,200 & 2,300 \
\hline \text { Fair value of land, end of year } & 1,550 & 1,150 & 1,400 & 1,500 \
\hline
\end{array}$$ Required:
Complete the following table, assuming that WNL uses the historical cost basis of measurement
 $$\begin{array} { | l | r | r | r | r | } 
\hline \text { Historical cost basis (\$000's) } & \mathbf { 2 0 2 0 } & \mathbf { 2 0 2 1 } & \mathbf { 2 0 2 2 } & \mathbf { 2 0 2 3 } \
\hline \text { Revenue } & \$ 3,100 & \$ 3,500 & \$ 2,600 & \$ 2,400 \
\hline \text { Expenses } & 2,900 & 2,900 & 2,200 & 2,300 \
\hline \text { Gain on disposal of land } & & & & \
\hline \text { Net income } & & & & \
\hline \text { (= comprehensive income) } & & & & \
\hline \text { Opening retained earnings } & & & & \
\hline \text { Closing retained earnings } & & & & \
\hline & & & & \
\hline \text { Cash } & \$6,500& & & \
\hline \text { Land } &\underline{ 1,200}& & & \
\hline \text { Total assets } &\underline{\$7,700} & & & \
\hline & & & & \
\hline \text { Share capital } & \$ 7,500 & & & \
\hline \text { Retained earnings } & & & & \
\hline \text { Total shareholder's equity } & & & & \
\hline
\end{array}$$

Accepted Answer

The answer of Wright Now Limited (WNL)was incorporated on January...

Question 4

Company Twelve purchased land for $900,000 some years ago. Fair value was $800,000 at the beginning of this year and $1,000,000 at the end of this year.
Prepare the journal entry to record this year's revaluation adjustment.

Accepted Answer

The answer of Company Twelve purchased land for $900,000 some...

Question 5

Company Nine purchased land for $600,000 some years ago. Fair value was $800,000 at the beginning of this year and $350,000 at the end of this year.
Prepare the journal entry to record this year's revaluation adjustment.

Accepted Answer

The answer of Company Nine purchased land for $600,000 some...

Question 6

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $40,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much depreciation expense would be recorded in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the new carrying amount of the property is its fair value of $40,000. With a remaining depreciable life of 5 years, the annual depreciation expense is $40,000 / 5 = $8,000, recorded as a debit to reflect the expense.

Question 7

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $40,000. Assuming this is the first year of using the revaluation model, which of the following amounts will be booked?

Accepted Answer

Under the revaluation model, if an asset's carrying amount is decreased as a result of a revaluation, the decrease should be recognized in profit or loss. Since the fair value ($40,000) is below the net carrying value ($80,000), a $40,000 debit (expense) should be recognized in profit and loss to reflect the decrease in value.

Question 8

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $140,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much would be booked to accumulated depreciation in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the building's new carrying amount is its fair value of $140,000. With a remaining depreciable life of 5 years, annual depreciation is $140,000 / 5 = $28,000. Since revaluation resets the accumulated depreciation account, the first year's depreciation after revaluation would be booked as a $28,000 credit to accumulated depreciation, reflecting the increase in the accumulated depreciation balance due to the depreciation expense for the year.

Question 9

Smith Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 60,000 \
\hline \text { Net carrying value } & 60,000 \
\hline
\end{array}$$ The fair value for the property is $150,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much would be booked to accumulated depreciation in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the building's new carrying amount is its fair value of $150,000. With a remaining depreciable life of 5 years, annual depreciation is $150,000 / 5 = $30,000. Since revaluation resets the accumulated depreciation, the annual depreciation of $30,000 is credited to accumulated depreciation.

Question 10

Compare the proportional method and the elimination method for recording the revaluation entry. Contrast the benefits and drawbacks of each method.

Accepted Answer

The answer of Compare the proportional method and the elimination...

Question 11

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $140,000. Assuming this is the first year of using the revaluation model, which of the following amounts will be booked?

Accepted Answer

Under the revaluation model, any increase in fair value is recognized in OCI (other comprehensive income) rather than in the profit and loss account. The increase in value is debited to the asset account, and the same amount is credited to the revaluation surplus account (part of OCI). Therefore, in this case, the revaluation surplus would be $60,000 ($140,000-$80,000), and it would be credited to OCI.

Question 12

Company Ten purchased land for $400,000 during the year. Fair value at the end of the year was $500,000.
Prepare the journal entry to record the revaluation adjustment.

Accepted Answer

The answer of Company Ten purchased land for $400,000 during...

Question 13

Company One purchased land for $900,000 some years ago. Fair value was $450,000 at the beginning of this year and $340,000 at the end of this year.
Prepare the journal entry to record this year's revaluation adjustment.

Accepted Answer

The answer of Company One purchased land for $900,000 some...

Question 14

Wallace Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $60,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much depreciation expense would be recorded in the year subsequent to the revaluation?

Accepted Answer

The correct answer is A.The revaluation loss of $20,000 ($80,000 - $60,000) is debited to the revaluation surplus account. The depreciable amount is now $60,000, and the remaining depreciable life is 5 years. Therefore, the annual depreciation expense is $12,000 ($60,000 / 5).

Question 15

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $140,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much depreciation expense would be recorded in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the building's new carrying amount is its fair value of $140,000. With a remaining depreciable life of 5 years, the annual depreciation expense is calculated as $140,000 / 5 = $28,000. This amount is recorded as a debit because depreciation expense reduces net income.

Question 16

Wallace Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $60,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much would be booked to accumulated depreciation in the year subsequent to the revaluation?

Accepted Answer

When the revaluation model is used, the asset is initially recorded at cost and then adjusted annually to reflect changes in fair value. Any increase in fair value is credited to revaluation surplus, while any decrease is charged to income. In this case, the fair value is less than the net carrying value of $80,000, so there is a revaluation loss. The entry to record the revaluation loss is:
Dr. Building Accumulated Depreciation $40,000
Dr. Revaluation Surplus $20,000 (the amount necessary to reduce the carrying value to the fair value)
Cr. Building Gross Value $60,000
The new carrying value of the building is $60,000 and the remaining depreciable life is 5 years, so the annual depreciation expense is $12,000 ($60,000/5). Under the revaluation model, accumulated depreciation is adjusted annually to reflect the new carrying value, so the entry to record the depreciation expense is:
Dr. Depreciation Expense $12,000
Cr. Building Accumulated Depreciation $12,000
This results in a credit to accumulated depreciation, indicating an increase in the amount of depreciation recorded. Therefore, the answer is B.

Question 17

Sigma Company has a piece of equipment with an original cost of $1,440,000. The equipment's carrying value at the beginning of this year (net of accumulated depreciation)was $1,080,000. Sigma recorded $120,000 for depreciation for this year. The equipment's fair value at the end of the year was $1,056,000. This is the first year that the company has revalued this equipment.
Required:
a. Record the journal entry for the revaluation adjustment assuming that Sigma uses the elimination method.
b. Record the journal entry for the revaluation adjustment assuming that Sigma uses the proportional method.

Accepted Answer

The answer of Sigma Company has a piece of equipment...

Question 18

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $40,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much would be booked to accumulated depreciation in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the new carrying amount is $40,000. With a remaining life of 5 years, annual depreciation is $40,000 / 5 = $8,000. Thus, $8,000 is credited to accumulated depreciation.

Question 19

Smith Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 60,000 \
\hline \text { Net carrying value } & 60,000 \
\hline
\end{array}$$ The fair value for the property is $150,000. Using straight-line depreciation and assuming that the property has a remaining depreciable life of 5 years, how much depreciation expense would be recorded in the year subsequent to the revaluation?

Accepted Answer

After revaluation, the new carrying amount of the property is its fair value of $150,000. With a remaining depreciable life of 5 years, the annual depreciation expense is $150,000 / 5 = $30,000. This is recorded as a debit to reflect the expense.

Question 20

Smith Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 60,000 \
\hline \text { Net carrying value } & 60,000 \
\hline
\end{array}$$ The fair value for the property is $150,000. Assuming this is the first year of using the revaluation model, what amount would be booked to profit and loss if Smith chooses to use the elimination method to record the revaluation?

Accepted Answer

The answer of Smith Inc wishes to use the revaluation...

Quiz 10: Applications of Fair Value to Non-Current Assets

Explain the accounting under the revaluation model available under IFRS.

Company Twelve purchased land for $900,000 some years ago. Fair value was $800,000 at the beginning of this year and $1,000,000 at the end of this year. Prepare the journal entry to record this year's revaluation adjustment.

Company Nine purchased land for $600,000 some years ago. Fair value was $800,000 at the beginning of this year and $350,000 at the end of this year. Prepare the journal entry to record this year's revaluation adjustment.

Compare the proportional method and the elimination method for recording the revaluation entry. Contrast the benefits and drawbacks of each method.

Company Ten purchased land for $400,000 during the year. Fair value at the end of the year was $500,000. Prepare the journal entry to record the revaluation adjustment.

Company One purchased land for $900,000 some years ago. Fair value was $450,000 at the beginning of this year and $340,000 at the end of this year. Prepare the journal entry to record this year's revaluation adjustment.