Page 451 - F1 Integrated Workbook STUDENT 2018

Answers

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 bbe 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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