ExpertMedium2 marksMultiple Choice
ACCA · Question 03 · IAS 16 Property, Plant and Equipment
Section A
AgriYield operates a large-scale commercial farm. On 1 January 20X4, AgriYield purchased a specialized harvester for $120,000, with an estimated useful life of 10 years and nil residual value. The company uses the revaluation model for this class of asset. On 31 December 20X5, the harvester was revalued to $104,000.
What is the amount to be recognized in Other Comprehensive Income (OCI) as a revaluation surplus on 31 December 20X5?
Section A
AgriYield operates a large-scale commercial farm. On 1 January 20X4, AgriYield purchased a specialized harvester for $120,000, with an estimated useful life of 10 years and nil residual value. The company uses the revaluation model for this class of asset. On 31 December 20X5, the harvester was revalued to $104,000.
What is the amount to be recognized in Other Comprehensive Income (OCI) as a revaluation surplus on 31 December 20X5?
Answer options:
A.
$8,000
B.
$16,000
C.
$4,000
D.
$0, the gain is recognized in profit or loss
How to approach this question
Calculate the carrying amount of the asset at the date of revaluation (Cost - Accumulated Depreciation). Then compare this carrying amount to the revalued amount.
Full Answer
A.$8,000✓ Correct
1. Annual depreciation = $120,000 / 10 years = $12,000 per year.
2. Accumulated depreciation at 31 Dec 20X5 (2 years) = $24,000.
3. Carrying amount at 31 Dec 20X5 = $120,000 - $24,000 = $96,000.
4. Revalued amount = $104,000.
5. Revaluation surplus = $104,000 - $96,000 = $8,000. This initial gain is recognized in OCI.
Common mistakes
Forgetting to deduct the second year's depreciation before calculating the revaluation surplus.
Practice the full ACCA FR — Financial Reporting Practice Exam 5
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