Land is carried at its cost of £200,000. The directors revalue it at £260,000 under IAS 16's revaluation model. Where is the gain of £60,000 recognised?
Answer and explanation
Correct answer: A. In other comprehensive income, within a revaluation surplus in equity
- Step 1: A first upward revaluation of an asset above cost is not realised by sale.
- Step 2: IAS 16 takes the gain to other comprehensive income and credits a revaluation surplus.
Answer
In other comprehensive income, within a revaluation surplus in equity.
Why not the others: A gain through profit or loss would let unrealised amounts increase distributable profit. Land is not normally depreciated, so there is no charge to reduce. A revaluation gain is a rise in equity, not a liability.
Practise more Preparing financial statements.
Free questions with an explanation for every one, and full timed ICAEW ACA Certificate Level mock tests.
More Preparing financial statements questions
- A sole trader has the following for the year: sales £180,000, sales returns £4,000, opening inventory £12,000, purchases £96,000, purchases…
- Using the gross profit of £84,000, a sole trader's other items are: wages £31,000, rent £12,000, depreciation £5,400, irrecoverable debts £9…
- A sole trader began the year with capital of £50,000, made a net profit of £35,900, took drawings of £18,000 and introduced a further £5,000…
- Where is carriage outwards (the cost of delivering goods to customers) shown in a sole trader's financial statements?
- At the year end a business has total assets of £120,000 and total liabilities of £45,000. What is the owner's capital?
- A sole trader's balances at the year end are: freehold property £180,000, vehicles at carrying amount £24,000, inventory £18,500, trade rece…