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MGT401 Assignment 1

IAS 16 requires the revaluation of non-current assets to reflect changes in their value over time due to factors like usage, age, and inflation. Revaluation is allowed when the future benefits of an asset are probable and its cost can be reliably measured. Star company revalued its buildings. Building A was revalued downwards by Rs. 90, incurring a revaluation deficit of Rs. 0.4 charged to retained earnings. Building B was revalued upwards by Rs. 30, creating a surplus of Rs. 0.6 credited to retained earnings. Building C was revalued downwards by Rs. 94, resulting in a deficit of Rs. 0.92 charged as an expense. The revaluations

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178 views

MGT401 Assignment 1

IAS 16 requires the revaluation of non-current assets to reflect changes in their value over time due to factors like usage, age, and inflation. Revaluation is allowed when the future benefits of an asset are probable and its cost can be reliably measured. Star company revalued its buildings. Building A was revalued downwards by Rs. 90, incurring a revaluation deficit of Rs. 0.4 charged to retained earnings. Building B was revalued upwards by Rs. 30, creating a surplus of Rs. 0.6 credited to retained earnings. Building C was revalued downwards by Rs. 94, resulting in a deficit of Rs. 0.92 charged as an expense. The revaluations

Uploaded by

Power Girls
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Q1: You are required to mention why IAS-16

requires the revaluation of non-current assets


in the relevant classes of each asset and why
the revaluation of assets must be kept up to
date once it is implemented.

Answer:
A revaluation of the assets of a company is necessary because it changes with usage
and time since they were acquired or because inflation has made the balance-sheet
values unrealistic therefore requires revaluation increments and decrements
relating to assets within a class of non current assets to be offset against one
another.
The basic reasons given by IAS 16 for revaluation of assets are:
(a) It is probable that future economic benefits associated with the item will flow to
the entity; and
(b) the cost of the item can be measured reliably.

Q2: Calculate the figures that would appear in


Star’s financial statements in respect of
property if the company selects to show the
buildings at their valuation basis. You are
required to point out where this kind of financial
information would appear in financial
statements; only relevant calculations are
required without preparing any detail notes
S.# Particulars Cost Dep Acc Dep Written
As On Addition / As % As On 01- Addition Durin As On Down
01- Deletion On 30 July / g The 30 Value
July June Deletion Year June
1 Building A 250 -90 160 2 70 1.8 71.8 88.2
2 Building B 150 -30 120 2 60 1.2 61.2 58.8
3 Building C 134 -94 40 2 48 -8 40 0
534 214 320 178 -5 173 147

Building A
Cost and Accumulated Depreciation of the asset before revaluation:

Cost of Asset/Gross carrying Amount Rs. 250

Accumulated Depreciation Rs. 70

Carrying amount Rs. 180

The asset is revalued at Rs. 160


Depreciation is charged 2%

Solution:

Depreciation charged on carrying amount = carrying amount x rate of depreciation

=180* 2/100

=Rs. 3.6

Depreciation charged on revalued amount = revalued amount x rate of depreciation

=160* 2/100

= Rs.3.2

Revaluation deficit

=3.2-3.6 = - 0.4

=Rs. -0.4

Revaluation deficit (Rs.0.4) is being charged to the Retained Earnings.


Building B
Cost and Accumulated Depreciation of the asset before revaluation:

Cost of Asset/Gross carrying Amount Rs. 150

Accumulated Depreciation Rs.60

Carrying amount Rs. 90

The asset is revalued at Rs. 120


Depreciation is charged 2%

Solution:

Depreciation charged on carrying amount = carrying amount x rate of depreciation

=90* 2/100

=Rs. 1.8

Depreciation charged on revalued amount = revalued amount x rate of depreciation

=120* 2/100

= Rs.2.4

Revaluation Surplus

=2.4 - 1.8 = 0.6

=Rs. 0.6

Revaluation Surplus (Rs.0.6) is being charged as retained earnings.

Building C
Cost and Accumulated Depreciation of the asset before revaluation:

Cost of Asset/Gross carrying Amount Rs. 134

Accumulated Depreciation Rs. 48

Carrying amount Rs. 86


The asset is revalued at Rs. 40
Depreciation is charged at 2%

Solution:

Depreciation charged on carrying amount= carrying amount x rate of depreciation

=86* 2/100

=Rs. 1.72

Depreciation charged on revalued amount = revalued amount x rate of depreciation

=40* 2/100

= Rs.0.8

Revaluation Deficit

=0.8 – 1.72 = - 0.92

=Rs. 0.92

Revaluation deficit (Rs.0.92) is being charged as expense.

RESULT:
Rs.0.8 will be shown as Retained Earnings
Rs 1.32 as expenses
Rs 147 as written down value in respect of
property in financial statement.

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