Page 179 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

NNon-curreent assets – Acquisition, Depreciiation annd Subseequent
Recoggnition

Exxampple 7

An entity originally purchased a piiece of land on 01/011/X7 for $100,000.

On the 31/12//X8 the lannd was revvalued to $150,000. TThe land wwas sold forr
$1880,000 on 31/12/Y1.

Callculate thee profit or loss on ddisposal too be showwn in the sstatement of
proofit or losss and any revaluatioon adjustmments thatt need to b be made.

Sollution

Whhen the land was revaalued the eentries wouuld be madde as followws:

This asset inccreases in value fromm $100,0000 to $150,0000. The inncrease is
credited to thee revaluation reservee.

Dr AAsset $50,0000
Cr Revaluatioon reserve $50,0000
Whhen the assset was sold the carryying amouunt was $1550,000.

Thee gain on ddisposal to the statemment of proofit or loss would be $$30,000
($180,000 – $$150,000)

This would bee accounteed for by:

Dr Bank $180,0000
Cr Land $150,0000
Cr Profit or loss $30,0000
Thee revaluatioon reservee for the lannd would nnow be releeased into profits as the
gain is now reealised.

Dr Revaluatioon reserve $50,0000
Cr Retained eearnings $50,0000
This would bee shown onn the SOCIE.

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