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Write answers to the two questions below
Write answers to the two questions below.
A company bought a plot of land where to build a new administrative building in January 2019. The company uses the revaluation model to account for land. The plot of land was bought for €500,000. On 31 December 2019 the land is revalued at €550,000.
1) State in which value, under which line items and in which financial statements to 31 December 2019 the effect of the revaluation will be reported? (NB! You have to mention all the financial statements and their line items that will be affected)
2) What would be reported differently if the land was not used for a new administrative building but had been bought in order to start leasing it out?
Expert Solution
An upward revaluation of an asset results in an increase in the carrying amount of the asset.in the balance sheet
| Assets | |||
| share holder equity 500000 (assumed) | LAnd cost 500000 | ||
| add - other comphrensiv income (revalution surplus) - 50000 | 550000 | revalution - 50000 | 550000 |
now depreciation will be applicble on the amount of 550000 (revalued amount ) in the profit and loss account .
in the revalution model revaution surplus is reported under the shareholder’s equity in other comprehensive income as revaluation surplus. this effect increase in shareholder’s equity and in the p/l account decrease in net income because take depreciation on revalued amount so - higher depreciation.
2)revaluation model, right-of-use asset shall be revalued at its fair value means revalued value (550000). lease liability applicable on 550000.. in the income statement show intrest value in the instalment are included. and in the balance sheet -The lease receivable is reported. The value is the present value of lease payments in future. in this case lessor decreses its assets value by the carrying amount of the asset leased.
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