Revaluation accounting PDF

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Multiple Choice - Theory Statement 1: When property, plant and equipment are revalued, the entire class should be revalued. Statement 2: The assets within a class of property, plant and equipment are revalued simultaneously in order to meet selective revaluation of assets and the reporting of amount...

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Multiple Choice - Theory 1. Statement 1: When property, plant and equipment are revalued, the entire class should be revalued. Statement 2: The assets within a class of property, plant and equipment are revalued simultaneously in order to meet selective revaluation of assets and the reporting of amounts which are a mixture of cost and value at different dates. a. True:False c. True:True b. False:True d. False:False 2. The fair value is determined by appraisal normally undertaken by? a. Professional qualified surveyors c. Professional qualified valuers b. Brokers d. Estate brokers 3. It is used when market value is not available. a. Depreciated replacement cost b. Carrying amount

c. Historical cost d. None of the above

4. Statement 1: The frequency of revaluation depends upon the changes in cost of property, plant and equipment being revalued. Statement 2: When the fair value of a revalued asset differs materially from the carrying amount, no further revaluation is necessary. a. True:False c . False:True b. False:False d. True:True 5. The revalued amount of property, plant and equipment is based on: I. Fair value which is the current purchase price of the property, plant and equipment. II. Depreciated replacement cost which is the sound value of the asset. a. I only c. II only b. Both I and II d. Neither I nor II 6. Statement 1: Carrying amount is equal to historical cost plus the corresponding accumulated depreciation. Statement 2: Fair value is the current purchase price of the property, plant and equipment. Statement 3: Replacement cost is the price that would be received to sell an asset. a. True:False:True c. False:True:True b. False:True:False d. False:False:False 7. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably can be carried at: a. Historical Cost c. Carrying amount b. Replacement Cost d. Answer not given

8. The fair value or depreciated replacement cost minus the carrying amount of the property, plant and equipment. a. Revaluation increment c. Sound Value b. Replacement cost d. Carrying amount 9. It is the excess of the revalued amount over the historical cost. a. Gain on revaluation c. Loss on revaluation b. Revaluation decrease d. Appreciation 10. These are the two approaches in recording the revaluation: a. Cost / Revaluation c. Proportional/ Elimination b. Cost/ Proportional d. Cost/ Elimination 11. Statement 1: Cost approach is not an approach in recording revaluation. Statement 2: Proportional approach is preferable because it preserves the gross and net amounts after revaluation a. Only statement 1 is correct c. Both statements are correct b. Only statement 2 is correct d. Both statements are wrong 12. The revaluation surplus is allocated or realized over the remaining useful life of the asset and reclassified through __________? a. Income c. Share capital b. Retained earnings d. Share premium 13. Initially, an item of property, plant, and equipment that qualifies for recognition shall be measured at: a. Fair value c. cost b. Fair value less transaction costs d. present value 14. After recognition, an entity shall choose either_____ as an accounting policy and shall apply that policy in an entire class of property, plant, and equipment: a. Cost Model/ Revaluation Model c. Revaluation Model/ Fair Value Model b. Cost Model/ Fair Value Model d. Revaluation Model/ Impairment Model 15. The measurement of revaluation model is at: a. Fair value at the date of acquisition less any subsequent accumulated depreciation and subsequent accumulated impairment losses b. Fair value at the date of the revaluation less any depreciation expense and subsequent accumulated impairment loss c. Fair value at the date of the revaluation at the date of the revaluation less any subsequent accumulated depreciation d. Fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment loss

16. I- An entity shall choose neither the cost model or revaluation model as an accounting policy. II- After recognition as an asset, an item of property, plant, and, equipment whose fair value can be measured reliably can be carried at revalued amount. a. Statement I is only true c. both statements are true b. Statement II is only true d. both statements are false 17. A further revaluation is necessary when: a. When the acquisition cost differs materially from the carrying amount. b. When the fair value of a revalued asset differs materially from the carrying amount c. When the acquisition cost differs immaterially from the carrying amount d. None of the above 18. I- When property, plant, and equipment are revalued, the entire class of property, plant, and equipment should be revalued II- The assets within a class of property, plant, and equipment are revalued retroactively in order to avoid selective revaluation of assets a. Statement I is only true c. Both statements are true b. Statement II is only true d. Both statements are false 19. The revalued amount of property, plant, and equipment is based on the following except: a. Fair Value c. Net Realizable Value b. Depreciated replacement cost d. Answer not given 20. It is the fair value or depreciated replacement cost of the item of property, plant, and equipment? a. Fair Value c. Revalued amount b. Depreciated replacement cost d. Net Realizable Value 21. If the elimination approach is applied in recording the revaluation, what is the correct journal entry to offset the gross carrying amount of the machinery? a. Debit Accumulated Depreciation c. Credit Accumulated Depreciation b. Debit PPE d. Credit PPE 22. Among the approaches in recording the revaluation, what is the preferable method? a. Fair Value Approach c. Elimination Approach b. Proportional Approach d. Cost Approach 23. It is the current “purchase price” of the property, plant, and equipment a. Depreciated replacement cost c. Revaluation surplus b. Carrying amount d. Replacement cost

24. It is equal to the fair value or depreciated replacement cost minus the carrying amount of PPE. a. Depreciated replacement cost c. Revaluation surplus b. Carrying amount d. Replacement cost 25. It is also known as the sound value of an asset a. Depreciated replacement cost b. Carrying amount

c. Revaluation surplus d. Replacement cost

26. What is the treatment of Revaluation surplus? a. Debited as revaluation surplus b. Debited to revaluation surplus as component of OCI c. Credited to revaluation surplus d. Credited to revaluation surplus as component of OCI Multiple Choice – Problem Solving For Questions 1-3 On January 1, 2015, Guiamalon Company reported the following account balances relating to property, plant, and equipment: Land Building Accumulated Depreciation Machinery Accumulated Depreciation

2,000,000 15,000,000 3,750,000 3,000,000 1,500,000

Assets have been carried at cost since acquisition. All assets were acquired on January 1, 2009. The straight line method is used. On January 1, 2015, the entity decided to revalue the property, plant, and equipment. On such date, competent appraisers submitted the following: Replacement Cost Land Building Machinery 1. What is the revaluation surplus on January 1, 2015 a. 15,000,000 b. 11,500,000 2. What is the depreciation for the current year? a. 531,250 b. 875,000

5,000,000 25,000,000 5,000,000 c. 30,000,000 d. 8,500,000 c. 525,000 d. 625,000

3. What is the revaluation surplus on December 31, 2015 a. 11,075,000 c. 11,050,000 b. 11,150,000 d. 10,850,000 Solutions: Question 1 Building Original Cost 15,000,000 3,750,000 11,250,000

Replacement Cost 25,000,000 6,250,000 18,750,000

Increase 10,000,000 2,500,000 7,500,000

Machinery Original Cost 3,000,000 1,500,000 1,500,000

Replacement Cost 5,000,000 2,500,000 2,500,000

Increase 2,000,000 1,000,000 1,000,000

Land Original Cost 2,000,000

Replacement Cost 5,000,000

Increase 3,000,000 11,500,000

Question 2 Dep. Of Building= 3,750,000/15,000,000= 25%

Dep. Of Machinery= 15/30= 50%

10yrs/25%= 40 years – 10 years= 30 years life

10yrs/50%= 20yrs-10 years= 10 years life

18,750,000/30= 625,000

2,500,000/10= 250,000 625,000+250,000= 875,000

Question 3 Revaluation Surplus- beg Revaluation Allocation Building (7,500,000/30) Revaluation Allocation Machine (1,000,000/10)

11,500,000 (250,000) (100,000) 11,150,000

For Questions 4-6 On January 1, 2018, Raj Company provided the following information related to the land and building: Land Building Accumulated depreciation-building

50,000,000 450,000,000 75,000,000

There were no additions or disposals during the current year. Depreciation is computed using straight line over 15 years for building. On June 30,2018 the land and building were revalued. Replacement Cost 65,000,000 600,000,000

Land Building

Sound Value 65,000,000 480.000,000

4. What is the revaluation surplus on June 30, 2018 a. 135,000,000 c. 120,000,000 b. 125,000,000 d. 160,000,000 5. What is the depreciation of the building for the current year? a. 30,000,000 c. 40, 000,000 b. 35,000,000 d. 32,000,000 6. What is the revaluation surplus on December 31, 2018 a. 125,000,000 c. 123,750,000 b. 130,000,000 d. 115,000,000 Solutions for questions 4-6 Building Original Cost 450,000,000 90,000,000 360,000,000

Replacement Cost 600,000,000 120,000,000 480,000,000

Increase 150,000,000 30,000,000 120,000,000

Land Original Cost 50,000,000

Replacement Cost 65,000,000

Increase 15,000,000 135,000,000

450,000,000/15=30,000,000*3years= 90,000,000 Question 5 450,000,000/15yrs- 30,000,000, depreciation expense per year 75/30=2.5 years +.5 year= 3 years 15yrs-3yrs= 12 years of depreciable life 480,000,000/12yrs= 40,000,000 Question 6 Revaluation Surplus- beg Allocation of Revaluation (120,000,000/12)

135,000,000 (10,000,000) 125,000,000

For Questions 7-10 On December 31, 2019, Clandestine Company reported the following information related to equipment: Equipment at cost 5,000,000 Accumulated Depreciation 1,750,000 The equipment was measured using the cost model and depreciated on a straight line basis over a 10-year period On December 31, 2019 the entity decided to change the basis of measuring the equipment from the cost model to the revaluation model. On the revaluation date, the equipment had a fair value of 4,550,000 with an expected remaining useful life of 5 years 7. What is included in the journal entry to record the revaluation on December 31, 2019? a. Debit Machinery 1,300,000 b. Credit accumulated depreciation 2,450,000 c. Credit Accumulated Depreciation 700,000 d. Debit Revaluation Surplus 1,300,000 8. What is the depreciation for 2019? a. 500,000 c. 250,000 b. 150,000 d. 300,000 9. What is the depreciation for 2020? a. 910,000 c. 455,000 b. 500,000 d. 650,000 10. What is the revaluation surplus on December 31, 2020 a. 1,300,000 c. 1,170,000 b. 1,040,000 d. 3,640,000 Solution for questions 7-10 Equipment Original Cost 5,000,000 1,750,000 3,250,000

Replacement Cost 7,000,000 2,450,000 4,550,000

Machinery

Increase 2,000,000 700,000 1,300,000

2,000,000

Accumulated Depreciation

700,000

Residual Value

1,300,000

Question 8 Original Cost 5,000,000/10yrs= 500,000 Question 9 Fair Value of 4,550,000/5years= 910,000 Question 10 Residual Value Beg. Revaluation Surplus Allocation (1,300,000/5)

1,300,000 (260,000) 1,040,000

For Problems 11-13 On January 1, 2019 Mat Company acquired a building at cost of P10,000,000. The building has been depreciated on the basis of a 20-year life. On January 1, 2024, an appraisal of the building showed replacement cost at P16,000,000 with no change in useful life. 11. Before income tax, what amount should be credited to revaluation surplus on January 1, 2024? a. 6,000,000 c, 8,500,000 b. 4,500,000 d. 12,000,000 12. What is the depreciation for 2024? a. 500,000 c. 800,000 b. 300,000 d. 600,000 13. What is the revaluation surplus that should be reported in the December 31, 2024 statement of financial position? a. 4,200,000 c. 1,850,000 b. 2,250,000 d. 2,800,000

Solution for questions 11-13 Question 11 Building Accumulated Depreciation

Original Cost 10,000,000 2,500,000

Replacement Cost 16,000,000 4,000,000

Increase 6,000,000 1,500,000

7,500,000

12,000,000

4,500,000

Percentage of accumulated depreciation (5/20)

25%

Question 12 Depreciation (12,000,000/15yrs)

800,000

Question 13 Revaluation Surplus-beg Realization in 2018 (4,500,000/15)

4,500,000 (300,000) 4,200,000

For Questions 14-15 On June 30, 2009, Datu Kennedy Jr, Company reported the following information: Equipment at Cost 2,500,000 Accumulated Depreciation 750,000 The equipment was measured using the cost model and depreciated on a straight line basis over a 10-year period. On December 31, 2009, the management decided to change the basis of measuring the equipment from the cost model to the revaluation model. The equipment had a fair value of P2,275,000 with remaining useful life of 5 years on December 31, 2009 14. What is the carrying amount of the asset on December 31, 2009? a. 1,625,000 c. 1,700,000 b. 1,650,000 d. 1,675,000 15. What amount should be reported as pretax revaluation surplus on December 31, 2009? a. 525,000 c. 750,000 b. 650,000 d. 1,000,000 16. What is the depreciation of the equipment for 2010? a. 250,000 c. 227,500 b. 455,000 d. 325,000 Solutions for questions 14-16 Question 14 Cost- June 30, 2009 Accumulated Depreciation Carrying Amount- June 30 Depreciation from July 1 to Dec.31 (2,500,000/10 *6/12) Carrying amount- Dec 31

2,500,000 (750,000) 1,750,000 (125,000) 1,625,000

Question 15 Fair value- December 31,2009 Carrying amount -Dec 31

2,275,000 (1,625,000) 650,000

Question 16 Depreciation (2,275,000/5)

455,000

For items 17-19 Panda Company presented the following account balances relating on property, plant and equipment on January 01, 2017: Land Building Accumulated Depreciation Machinery Accumulated Depreciation

5,000,000 30,000,000 7,500,000 4,000,000 2,000,000

Assets have been carried at cost since their acquisition. All assets were acquired 5 years ago. The straight line method is used. On January 1, 2017, Panda Company revalued the property, plant and equipment. On such date, competent appraisers submitted the following: Land Building Machinery 17. What is the depreciation for 2017? a. 3,530,000 b. 2,350,000

10,000,000 35,000,000 6,000,000 c. 2,950,000 d. 1,775,000

18. What is the revaluation surplus on January 1, 2017? c. 12,000,000 a. 9,750,000 b. 21,500,000 d. 27,500,000 19. What is the revaluation surplus on December 31, 2017? a. 11,550,000 c. 11,750,000 b. 9,550,000 d. 9,300,000 Solution for Question 17-19 Question 17 Building Machinery Total

(35,000,000 x .75 / 15 years remaining) (6,000,000 x.75/ 5 years remaining)

1,750,000 600,000 P2,350,000

Question 18 Percentage of accumulated depreciation Building Machinery

Useful life Building Machinery

(7,500,000/30,000,000) (2,000,000/4,000,000)

25% 50%

(5 years expired/25%) (5 years expired/50%)

20 years 10 years

Sound Value Land 10,000,000 Building (3,500,000 x.75) 26,250,000 Machinery (6,000,000x.50) 3,000,000

Carrying amount

Revaluation Surplus

5,000,000 22,500,000 2,000,000

5,000,000 3,750,000 1,000,000 P9,750,000

Question 19 Revaluation surplus – Jan.1, 2017 Piecemeal realization in 2017: Building (3,750,000/15) Machinery (1,000,000/5) Revaluation surplus- Dec.31, 2017

9,750,000 250,000 200,000

(450,000) P9,300,000

For questions 20-22 On January 1, 2019, Iniwan Co, owned an equipment costing P7, 700,000 with residual value of P700,000. The life of the asset is 10 years and was depreciated using the straight line method. On such date, the equipment has a replacement cost of P11, 000,000 with a residual value of P500, 000 and the age of the asset is 4 years. The appraisal of the equipment showed a total revised useful life of 12 years and the entity decided to carry the equipment at revalued amount. 20. What amount should be reported as pretax revaluation surplus on January 1, 2019? a. 1,900,000 c. 2,100,000 b. 1,800,000 d. 2,000,000 21. What amount should be reported as pretax revaluation surplus on December 31, 2019? a. 1,662,500 c. 1,862,500 b. 1,762,500 d. 1,962,500 22. What is annual depreciation subsequent to revaluation? a. 787,500 c. 1,050,000 b. 550,000 d. 650,000

Solution 20-22 Question 20 Cost

Replacement Cost

Appreciation

Equipment Residual Value

7,700,000 ( 500,000)

11,000,000 ( 500,000)

3,300,000 -

Depreciable amount Accumulated Depreciation (40% x 7,000,000 ) (40% x 10,500,000) Balance

7,200,000

10,500,000

3,300,000

4,200,000 6,300,000

1,400,000 P1,900,000

2,800,000 4,400,000

Percentage of accumulated depreciation (4 years expired / 10 years original life)

40%

Question 21 Revaluation surplus – January 1, 2019 Realized in 2019 (1,900,000/8) Revaluation surplus – December 31, 2019

1,900,000 ( 237,500) P1,662,500

Revised useful life Age of asset Remaining revised life

12 years 4 years 8 years

Question 22 Subsequent annual depreciation (6,300,000/8)

P787,500

For questions 23-25 On January 1, 2015, Raj Malakas Company reported the following account balances: Accumulated Depreciation

Land

Cost 25,000,000

Building

100,000,000

20,000,000

The land and building were revalued on January 1, 2015 and the revaluation revealed the following sound value: Land 50,000,000 Building 120,000,000 There were no additions or disposals during 2015. Depreciation is computed on the straight line. The estimated life of the building is 20 years. 23. What amount should be recognized as pretax revaluation surplus on January 1, 2015?

a. 85,000,000 b. 65,000,000 24. What is the depreciation for 2015? a. 7,500,000 b. 4,000,000

c. 45,000,000 d. 55,000,000 c. 5,000,000 d. 6,000,000

25. What amount should be recognized as pretax revaluation surplus on December 31, 2015? a. 52,500,000 c. 47,500,000 b. 42,500,000 d. 63,500,000 Solution for 7-9 Question 7 Sound Value

Carrying amount

Revaluation surplus

Land Building

50,000,000 120,000,000

25,000,000 80,000,000

25,000,000 40,000,000

Total

170,000,000

105,000,000

P65, 000,000

Question 8 Percentage of accumulated depreciation (20,000,000/100,000,000) Remaining useful life (80% x 20 years)

20% 16 years

Subsequent annual depreciation (120,000,000/16 years)

P7,500,000

Question 9 Revaluation surplus – January 1, 2015

65,000,000

Realization of revaluation surplus on building (40,000,000/16years)

( 2,500,000)

Revaluation surplus – December 31, 2015

P62,500,000...