ExpertHard2 marksMultiple Choice
ACCA · Question 03 · Financial Reporting
Section A
Abyss Mining Co operates deep-sea mining equipment. On 1 January 20X3, Abyss acquired a specialized submersible for $2,000,000 with a useful life of 10 years and nil residual value. Abyss uses the revaluation model. On 31 December 20X4, the submersible was revalued to $1,920,000. On 31 December 20X5, due to technological advancements, the fair value fell to $1,300,000.
What amount should be charged to the statement of profit or loss for the year ended 31 December 20X5 regarding the revaluation decrease?
Section A
Abyss Mining Co operates deep-sea mining equipment. On 1 January 20X3, Abyss acquired a specialized submersible for $2,000,000 with a useful life of 10 years and nil residual value. Abyss uses the revaluation model. On 31 December 20X4, the submersible was revalued to $1,920,000. On 31 December 20X5, due to technological advancements, the fair value fell to $1,300,000.
What amount should be charged to the statement of profit or loss for the year ended 31 December 20X5 regarding the revaluation decrease?
Answer options:
A.
$380,000
B.
$60,000
C.
$100,000
D.
$140,000
How to approach this question
Calculate the carrying amount before the second revaluation. Determine the remaining balance on the revaluation surplus (remembering to transfer excess depreciation if it's standard practice). Deduct the total revaluation loss first from the surplus, with any excess going to Profit or Loss.
Full Answer
C.$100,000✓ Correct
1 Jan 20X3: Cost $2m.
31 Dec 20X4: CA before reval = $2m - ($2m/10 * 2) = $1.6m. Revalued to $1.92m. Revaluation surplus = $320,000.
31 Dec 20X5: Depreciation = $1.92m / 8 years remaining = $240,000. CA before reval = $1.92m - $240k = $1,680,000.
Excess depreciation transferred to retained earnings = $240,000 - $200,000 (historical) = $40,000.
Remaining Revaluation Surplus = $320,000 - $40,000 = $280,000.
New valuation = $1,300,000. Total loss = $1,680,000 - $1,300,000 = $380,000.
This loss first eliminates the $280,000 surplus in OCI. The remaining $100,000 is charged to Profit or Loss.
Common mistakes
Forgetting to transfer the excess depreciation, which would lead to an incorrect remaining surplus and therefore an incorrect P&L charge.
Practice the full ACCA FR — Financial Reporting Practice Exam 6
32 questions · hints · full answers · grading
More questions from this exam
Q01Section A
AgriTech Innovations is an agricultural technology startup. When preparing its financi...EasyQ02Section A
AstroData Co provides space exploration data analytics. On 1 October 20X5, AstroData e...MediumQ04Section A
SkyNet Logistics operates a fleet of commercial delivery drones. Due to new aviation r...MediumQ05Section A
Nomad Retail operates pop-up retail pods. On 1 January 20X6, Nomad entered into a 4-ye...MediumQ06Section A
Oceanic Wind PLC constructed an offshore wind turbine which commenced operations on 1 ...Medium