ExpertHard2 marksMultiple Choice
ACCA · Question 03 · Tangible Non-Current Assets
SECTION A
On 1 January 20X4, Titan Manufacturing Co acquired a specialized heavy-duty press for $800,000. It had an estimated useful life of 10 years and a nil residual value. Titan uses the revaluation model. On 31 December 20X5, the press was revalued to $720,000. On 31 December 20X6, due to a sudden decline in market demand, the press was revalued downwards to $450,000.
What amount should be charged to the statement of profit or loss for the year ended 31 December 20X6 regarding the revaluation decrease?
SECTION A
On 1 January 20X4, Titan Manufacturing Co acquired a specialized heavy-duty press for $800,000. It had an estimated useful life of 10 years and a nil residual value. Titan uses the revaluation model. On 31 December 20X5, the press was revalued to $720,000. On 31 December 20X6, due to a sudden decline in market demand, the press was revalued downwards to $450,000.
What amount should be charged to the statement of profit or loss for the year ended 31 December 20X6 regarding the revaluation decrease?
Answer options:
A.
$270,000
B.
$180,000
C.
$100,000
D.
$80,000
How to approach this question
1. Calculate carrying amount at 31 Dec 20X5. 2. Calculate the revaluation surplus created on 31 Dec 20X5. 3. Calculate depreciation for 20X6 based on the revalued amount and remaining life. 4. Calculate carrying amount at 31 Dec 20X6 before the second revaluation. 5. Determine the total deficit. 6. Offset the deficit against the existing revaluation surplus (OCI); the remainder goes to P&L.
Full Answer
C.$100,000✓ Correct
At 31 Dec 20X5, carrying amount was $800k - (2 * $80k) = $640k. Revalued to $720k, creating an $80k surplus in OCI. Remaining life = 8 years. 20X6 depreciation = $720k / 8 = $90k. Carrying amount at 31 Dec 20X6 = $720k - $90k = $630k. New valuation = $450k. Total drop = $180k. This drop first eliminates the $80k surplus in OCI, and the remaining $100k is an expense in P&L.
Common mistakes
Forgetting to depreciate the asset for the year 20X6 before calculating the revaluation deficit, or forgetting to offset against the existing OCI surplus.
Practice the full ACCA FR — Financial Reporting Practice Exam 1
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