Question 2 c 2 marks relevance the revaluation method

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ESTION 2 c (2 marks) Relevance: The revaluation method provides a relevant value for land as it is an estimate of the current market value (or similar words to that effect). 1 Mark Reliability: The revaluation method does not provide a reliable figure as it is an estimate of what may be obtained between willing and knowledgeable buyers and sellers at an arm’s length. 1 Mark Alternative answer: The revaluation method provides a reliable value as it is obtained from an independent valuer’s report. * Alternative answer should be awarded marks. *Merely writing down the definition does not suffice. Application of definition to the given case should be done. 1 Homework Question: Comparison between cost and revaluation method Land Y0 Buy for $100,000 Cost Method (AASB116/136) Revaluation Method (AASB116)* Recorded Value $100,000 Recorded Value $100,000 Journal Entry $150,000 Dr Land $50,000 Cr Revaluation Reserve $50,000 (OCI) $120,000 Dr Revaluation Reserve $30,000 (OCI) Cr Land $30,000 Journal Entry Dr Land $100,000 CR Cash $100,000 Dr Land $100,000 CR Cash $100,000 Y1 Market value: $150,000 $100,000 Y2 Market value: $120,000 $100,000 Y3 Market value: $75,000 $75,000 Dr Loss on impairment $25,000 Cr Allowance for impairment $25,000 $75,000 Dr Loss on devaluation of Land $25,000 (P&L) Dr Revaluation Reserve $20,000 (OCI) Cr Land $45,000 Y4 Market value: $110,000 $100,000 Dr Allowance for impairment $25,000 Cr Gain on reversal of impairment $25,000 $110,000 Dr Land $35,000 Cr Gain on revaluation of Land $25,000 (P&L) Cr Revaluation Reserve $10,000 (OCI) No journal entry No journal entry *Assuming land is revalued on a yearly basis. OCI= Other comprehensive income (AASB101) Note: new terminology: Revaluation Reserve instead of Asset Revaluation Reserve. Special thanks to Brian Booth for his technical expertise. 2...
View Full Document

This homework help was uploaded on 03/23/2014 for the course ACCT 1511 taught by Professor Kim during the Three '10 term at University of New South Wales.

Ask a homework question - tutors are online