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3 Revaluation Surplus

Dower Company purchased equipment for $2.4 million that was later revalued to $2.2 million on December 31, 2023. The journal entry to record the revaluation includes a debit to equipment for $200,000 and a credit to revaluation surplus for $240,000. The pretax revaluation surplus on December 31, 2024 is $240,000. GGG, Inc. purchased equipment for $10.4 million that was later revalued to $16 million on December 31, 2024 based on replacement cost. The revaluation surplus recognized is $5.2 million. The 2025 depreciation is $960,000. When Stigman Company revalued its

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3 Revaluation Surplus

Dower Company purchased equipment for $2.4 million that was later revalued to $2.2 million on December 31, 2023. The journal entry to record the revaluation includes a debit to equipment for $200,000 and a credit to revaluation surplus for $240,000. The pretax revaluation surplus on December 31, 2024 is $240,000. GGG, Inc. purchased equipment for $10.4 million that was later revalued to $16 million on December 31, 2024 based on replacement cost. The revaluation surplus recognized is $5.2 million. The 2025 depreciation is $960,000. When Stigman Company revalued its

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Neighvest
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Handout 03

Revaluation Surplus
Revaluation Surplus – Given is Fair Value
Numbers 1 and 2
On January 1, 2023, Dower Company purchased equipment costing P2,400,000 with a 6-year useful life and no residual
value. Dower entity used the straight-line method of depreciation. On December 31, 2023, the fair value of the equipment
was P2,200,000. Dower used the revaluation model and Dower revalued the equipment on December 31, 2023. The
entity restated its accumulated depreciation proportionately.

1) What is included in the journal entry to record the revaluation on December 31, 2023?
A. Debit equipment P200,000
B. Debit revaluation loss P200,000
C. Credit accumulated depreciation P40,000
D. Credit revaluation surplus P240,000
2) What is the pretax revaluation surplus on December 31, 2024?
A. 240,000
B. 200,000
C. 400,000
D. 160,000

Revaluation Surplus – Given is Replacement Cost


Numbers 3 and 4
On January 1, 2021, GGG, Inc. purchased an equipment for P10,400,000. Residual value was P800,000 and useful life
was for 10 years. On December 31, 2024, the equipment’s replacement cost had increased to P16,000,000 while its
residual value was reduced to P400,000. GGG appraised the equipment and the process resulted to the original life being
revised to 12 years.

3) How much is the revaluation surplus recognized on December 31, 2024?


A. 3,200,000
B. 5,200,000
C. 3,360,000
D. 9,360,000

4) How much is the 2025 depreciation?


A. 780,000
B. 960,000
C. 1,040,000
D. 1,170,000

Revaluation Surplus – With Tax Implication


5) On January 1, 2023, Stigman Company purchased building at a cost of P10,000,000 with a 10-year useful life and no
residual value. The entity used the straight line depreciation method.

On January 1, 2025, the entity decided to use revaluation model and it was determined that the fair value of the
equipment on this date is P12,000,000. The income tax rate is 30%.

What is included in the entry to record the revaluation on January 1, 2025?


A. Debit accumulated depreciation P1,000,000
B. Debit deferred tax liability P1,200,000
C. Credit revaluation surplus P5,000,000
D. Credit revaluation surplus P2,800,000

/ End /

FAR by: John Bo S. Cayetano, CPA, MBA Page 1 of 1

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