A building cost £400,000 on 1 January Year 1 with a useful life of 40 years and no residual value. It is revalued on 31 December Year 4 to £450,000 under IAS 16. What revaluation surplus is recognised?
Answer and explanation
Correct answer: A. £90,000
- Step 1: Annual depreciation = £400,000 ÷ 40 = £10,000, so accumulated depreciation after 4 years = £40,000.
- Step 2: Carrying amount at 31 December Year 4 = £400,000 − £40,000 = £360,000.
- Step 3: Revaluation surplus = £450,000 − £360,000 = £90,000.
Answer
£90,000.
Why not the others: £50,000: This compares the revalued amount with original cost and ignores the four years' depreciation already charged. £450,000: This credits the whole revalued amount instead of only the increase over the carrying amount. £40,000: This is the accumulated depreciation to date and not the surplus on revaluation.
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