ExpertMedium2 marksMultiple Choice
ACCA · Question 08 · Recording transactions and events
Section A
Metro Builders Ltd purchased a piece of heavy machinery on 1 January 20X1 for $100,000. It had an estimated useful life of 10 years and no residual value. The company uses straight-line depreciation. On 31 December 20X3, the machinery was revalued to $85,000.
What is the balance on the revaluation surplus account immediately after this revaluation?
Section A
Metro Builders Ltd purchased a piece of heavy machinery on 1 January 20X1 for $100,000. It had an estimated useful life of 10 years and no residual value. The company uses straight-line depreciation. On 31 December 20X3, the machinery was revalued to $85,000.
What is the balance on the revaluation surplus account immediately after this revaluation?
Answer options:
A.
$15,000
B.
$25,000
C.
$5,000
D.
Nil, it is recognized in the statement of profit or loss
How to approach this question
Calculate the accumulated depreciation up to the date of revaluation. Subtract this from the original cost to find the carrying amount. The difference between the revalued amount and the carrying amount is the revaluation surplus.
Full Answer
A.$15,000✓ Correct
Annual depreciation = $100,000 / 10 = $10,000. Accumulated depreciation for 3 years (20X1, 20X2, 20X3) = $30,000. Carrying amount = $100,000 - $30,000 = $70,000. Revaluation surplus = Revalued amount ($85,000) - Carrying amount ($70,000) = $15,000.
Common mistakes
Calculating depreciation for the wrong number of years (e.g., 2 years instead of 3).
Practice the full ACCA FA — Financial Accounting Practice Exam 1
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