University of San Jose - Recoletos

Magallanes St. Cebu City

In partial fulfillment of the course : Accounting 102
Revaluation Model :Theories and Problems

Submitted to :
Ms. Karen Lou Sampayan, CPA

Submitted by :
Joyce Busa
Ma. Stella Cabague
Elrose Carope
Reena Maye Malinao
Emma Manabat
Ara Sophia Rada
Moira Tañola
Sophia May Trazo
Reymark Bacasmas
Crimson Gadrinab
John Lorenzo Oflas

TTH 6:00 PM - 9:00 PM

SA 321
Theories :

1. Modified True or False : Under the IFRS, when an entity chooses the revaluation model as its
accounting policy for measuring property, plant and equipment, an asset is therefore revalued, and
individual assets within a class of property, plant and equipment to that asset belongs can be revalued.

Answer: False; entire class

2.Modified True or False: A revaluation decrease shall be charged directly against any depreciated
replacement cost to the extent that the decrease is a reversal of a previous revaluation and the balance
is charge to expense

Answer: False; a revaluation decrease shall be charged directly against any REVALUATION INCREMENT
to the extent that the decrease is a reversal of a previous revaluation and the balance is charge to
expense.

3. Modified True or False : When a balance carried in an 'asset revaluation surplus' account in relation to
an asset that has been derecognized, it is acceptable under PAS 16 to recognize the balance in profit or
of the period in which the asset was derecognized.

Answer: False; Transfer the balance to retained earnings

4. Modified True or False : Under the IFRS revalution model for accountig for property, plant and
equipment Assets must be revaluted every 3 to 5 years in order to be sufficient.

Answer: False; There are no rules regarding the frequency of revalution

5.Modified True or False: If an entity has a calendar year-end and a depreciable property is revalued at
the middle of the current year, the depreciation for the first half of the year is based on the average of
the depreciation based on the cost and for the second half on revalued amount of the property.

Answer: False; Depreciation for the first half of the year is based on COST and for the second half on
revalued amount

Problems:

Problem 1. On January 1, 2013, Plus Point Five Company acquired a building at cost of P7,000,000. The
building has been depreciated on the basis of a 5% straight line depreciation per year.

On January 1, 2020, an appraisal of the building showed replacement cost at 10,000,000 with no change
in useful life

What is the depreciation and revaluation surplus for Dec. 31 2020?

DEPRECIATION 500,000 & REVALUATION SURPLUS 1,650,000

Solution:
Accumulated Depreciation ( 5% x 8 years expired) = 40%

Remaining Life of an Asset = 8/40%= 20 Years - Expired Years (8) = 12 years

Cost Replacement Cost Appreciation

Building 7,000,000 10,000,000 3,000,000
Acc. Dep. (40%) 2,800,000 4,000,000 1,200,000
CA/SV/RS 4,200,000 6,000,000 1,800,000

Depreciation:
6,000,000 / 12 years = 500,000

Revaluation Surplus :

Revaluation Surplus - January 1, 2018 1,800,000

Piecemeal realization - 1,800,000/12 years = ( 150,000)
Revaluation Surplus, December 31,2018 1,650,000

Problem 2. Bisag Dos Lang Co. finished construction of a building on Jan. 1 2013 at a total cost of
25,000,000. The building was depreciated over the estimated useful life of 20 years using straight line
method with no residual value. The building was subsequently revalued on Dec. 31, 2016 and the
revaluation report showed that the asset had a replacement cost of 32,000,000 and was determined to
have no change in useful life. On Jan 1, 2018 the building was tested for impairment & the fair value was
18,000,000 on same date, with no change in the remaining useful life. What amount of revaluation
surplus should be recognized on Dec. 31, 2016?

Answer : 5,600,000

Solution :

Replacement Cost : 32,000,000

Accumulated Depreciation (32,000,000/20x4:) (6,400,000)
Sound Value: 25,600,000
Carrying Amount : (20,000,000)
Revaluation Surplus 5,600,000

Carrying Amount : Cost 1/1/13 25,000,000

Accumulated Depreciation (5,000,000)

Carrying Amount 20,000,000

Problem 3. On January 1, 2017, Hagbong Company owned a building with historical cost of 30,000,000.
The property is depreciated over 35 years on a straight line basis with no residual value
The entity adopted a revaluation model of measuring PPE. The building has so far been revalued twice at
fair value as follows:

January 1, 2018 47,600,000

January 1, 2020 66,600,000
What is the revaluation surplus for January 1, 2018
Answer : 18,457,142.86

Solution :

Cost 1/1/17 30,000,000

Accumulated Depreciation
(30,000,000/35) (857,142.86)
Carrying Amount 1/1/18 29,142.857.14

Fair Value 1/1/18 47,600,000

Carrying Amount 1/1/18 29,142,857.14
Revaluation Surplus 1/1/18 18,457,142.86

Problem 4:

On January 1, 2019, these are the account balances of Sampayan Company pertaining to property, plant,
and equipment.

Land 4 000 000

Building 30 000 000
Accumulated depreciation 7 500 000
Equipment 6 000 000
Accumulated depreciation 3 000 000
Note:
 Assets have been carried on at cost since their acquisition.
 All assets were acquired on January 1, 2019.
 The straight line method is used.
 The following property, plant, and equipment are revealed by the entity on January 1, 2019. On
such date, competent appraisers submitted the following:

Replacement cost
Land 10 000 000
Building 50 000 000
Equipment 10 000 000
Question:
What is the revaluation surplus on January 1, 2026?
Answer: 18 100 000
Solution:
*Percentage of accumulated depreciation
Building (7 500 000/30 000 000) 25%
Equipment (3 000 000/6 000 000) 50%
*Useful life
Building (10 years expired/25%) 40 years
Equipment (10 years expired/50%) 20 years

Sound value Carrying amount Revaluation Surplus

Land 10 000 000 4 000 000 6 000 000
Building (50 000 000 x 75%) 37 500 000 22 500 000 15 000 000
Equipment (10 000 000 x 50%) 5 000 000 3 000 000 2 000 000
23 000 000

Revaluation Surplus – January 1, 2019 23 000 000

Piecemeal Realization as of January 1, 2026
Building (15 000 000/30 x 7 years) (3 500 000)
Equipment (2 000 000/10 x 7 years) (1 400 000)
Revaluation Surplus as of January 1, 2026 18 100 000

Problem 5:

MAKAPASAR CO. has the following information as of January 1,2011 on its property, plant and
equipment account:

HISTORICAL COST ACCUMULATED DEPRECIATION

Land. 25,000,000
Building and Improvements 150,000,000. 50,000,000
Machinery and Equipment 200,000,000 18,750,000

There were no additions or disposal during 2011. Depreciation expense is computed on a straight-line
method over 20 years for building and improvements and 10 years for machinery and equipment. On
January 1, 2011 all of the company’s property, plant and equipmrnt were appraised as follows:

FAIR VALUE
Land 50,000,000
Buildings and Improvements. 225,000,000
Machinery and Equipment. 225,000,000
MAPASAR Co. booked the appraisal on Dec. 31,2011
How much should MAPASAR Co. report as revaluation surplus in PPE under shareholder’s equity?

Answer : 193,750,000
Solution:

Fair value of Assets. 500 000 000

Net book value. (306 250 000)

Revaluation increment 193 750 000