Question 1

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$
-According to the table above.The fair value for the property is $150,000. What amount would be booked to the "accumulated depreciation" account if Smith chooses to use the proportional method to record the revaluation?
A)$0
B)$35,000 debit.
C)$35,000 credit.
D)$70,000 credit.

Accepted Answer

Under the proportional method, the accumulated depreciation is adjusted proportionately with the change in the gross value of the asset.

The revaluation surplus is calculated as follows: 
Fair value - Net carrying value = 150,000 - 80,000 = $70,000

To adjust the carrying amount of the building, the following entry is made: 
Building Gross Value 40,000
Revaluation Surplus 30,000 
Accumulated Depreciation 35,000

The accumulated depreciation account is credited with $35,000 to reflect the increase in the carrying amount of the building.

Question 2

How should a revaluation entry generally not be booked?
A)Using the "proportional method."
B)Adjusting the difference between fair value and carrying value to profit and loss.
C)Adjusting the carrying value and accumulated depreciation by the same percentage so that the carrying amount equals fair value after revaluation.
D)Restating the gross carrying amount to fair value and removing the accumulated depreciation.

Accepted Answer

Adjusting the difference between fair value and carrying value directly to profit and loss is generally not the correct way to book a revaluation entry according to most accounting standards, including IFRS. Revaluation increases are typically recognized in other comprehensive income and accumulated in equity under a revaluation surplus, unless they reverse a revaluation decrease of the same asset previously recognized in profit or loss.

Question 3

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$
-According to the table above.The fair value for the property is $60,000. What amount would be booked to the "accumulated depreciation" account if Wallace chooses to use the proportional method to record the revaluation?
A)$0
B)$10,000 debit.
C)$10,000 credit.
D)$20,000 debit.

Accepted Answer

B

Question 4

Which statement describes the "revaluation model"?
A)A model which keeps the carrying value of an asset and adjusts for depreciation and impairment.
B)A model which restates the value of an asset at each measurement date.
C)A model which restates the carrying value of an asset to the asset's fair value on the date of revaluation.
D)A model which values the asset based on its productive capacity.

Accepted Answer

The revaluation model involves restating the carrying value of an asset to its fair value on the date of revaluation. This differs from the cost model, which keeps the carrying value of an asset and adjusts for depreciation and impairment. Option D refers to the productive capacity model, which is not related to asset valuation but rather focuses on the asset's ability to generate revenue. Option B may be a valid approach in some instances, but it is not specifically related to the revaluation model.

Question 5

Which is correct with respect to the accounting treatment under the cost or revaluation model?
A)Companies can choose to apply the revaluation model to each individual PPE or intangible asset under IFRS.
B)Companies can choose to apply the revaluation model to each class of PPE or intangible asset under IFRS.
C)Companies can choose to apply the revaluation model to each individual PPE or intangible asset under ASPE.
D)Companies can choose to apply the revaluation model to each class PPE or intangible asset under ASPE.

Accepted Answer

Under IFRS, companies can choose to apply the revaluation model to a class of assets, rather than to individual assets. This means that all assets within the same class will be revalued together. However, under ASPE, companies can choose to apply the revaluation model to each individual PPE or intangible asset. Therefore, option B is the correct answer.

Question 6

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$
-According to the table above.The fair value for the property is $100,000. What amount would be booked to the "accumulated depreciation" account if Grover chooses to use the proportional method to record the revaluation?
A)$0
B)$10,000 debit.
C)$10,000 credit.
D)$20,000 credit.

Accepted Answer

The proportional method involves adjusting the accumulated depreciation account proportionally to the increase in the asset's carrying amount due to revaluation. The building's net carrying value before revaluation is $80,000, and its fair value after revaluation is $100,000, indicating an increase of $20,000. The accumulated depreciation before revaluation is $40,000. To maintain the proportion, the accumulated depreciation needs to be reduced (credited) by a fraction of the increase, which is calculated as ($40,000 / $80,000) * $20,000 = $10,000. Therefore, a $10,000 credit to the accumulated depreciation account reflects the proportional adjustment due to revaluation.

Question 7

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $20,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the "other comprehensive income" account if Wilson chooses to use the proportional method to record the revaluation?
A)$0
B)$30,000 debit.
C)$30,000 credit.
D)$60,000 debit.

Accepted Answer

The answer of Wilson Inc wishes to use the revaluation...

Question 8

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $100,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the "other comprehensive income" account if Grover chooses to use the proportional method to record the revaluation?
A)$0
B)$10,000 debit.
C)$10,000 credit.
D)$20,000 credit.

Accepted Answer

The answer of Grover Inc wishes to use the revaluation...

Question 9

Wilson Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $140,000. What amount would be booked to the "accumulated depreciation" account if Wilson chooses to use the elimination method to record the revaluation?
A)$40,000 debit.
B)$40,000 credit.
C)$60,000 debit.
D)$140,000 credit.

Accepted Answer

The elimination method involves removing the accumulated depreciation by debiting it, which in this case is $40,000.

Question 10

Which statement describes the "historical cost model"?
A)A model which keeps the carrying value of an asset and adjusts for depreciation and impairment.
B)A model which restates the value of an asset at each measurement date.
C)A model which restates the carrying value of an asset to the asset's fair value on the date of revaluation.
D)A model which values the asset based on its productive capacity.

Accepted Answer

The historical cost model records the acquisition cost of an asset, adjusting for depreciation and impairment, without considering current market values.

Question 11

How is revaluation of non-current assets accounted for?
A)Revaluation surplus is always booked to profit and loss.
B)Revaluation loss is booked to other comprehensive income.
C)Cumulative revaluation loss is booked to profit and loss.
D)Revaluation surplus is not recognized in other comprehensive income.

Accepted Answer

DRevaluation surplus is recognized in other comprehensive income and not in profit and loss, which contradicts option A and aligns with option D. Revaluation loss, if it reverses a revaluation surplus for the same asset, is recognized in other comprehensive income; otherwise, it is recognized in profit and loss, making option C correct. Option B is incorrect because revaluation loss is not booked to other comprehensive income unless it reverses a surplus on the same asset.

Question 12

Wallace Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 150,000 \
\hline \text { Building Accumulated Depreciation } & 70,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $60,000. What amount would be booked to the "accumulated depreciation" account if Wallace chooses to use the elimination method to record the revaluation?
A)$20,000 debit.
B)$70,000 credit.
C)$70,000 debit.
D)$60,000 credit.

Accepted Answer

Under the elimination method, the accumulated depreciation is eliminated and a new depreciation charge is calculated based on the revalued amount. Since the fair value of the property is less than the net carrying value, a downward adjustment is necessary. The adjustment is the difference between the carrying value and fair value, which in this case is $80,000 - $60,000 = $20,000. This must be debited to the accumulated depreciation account to eliminate it. Therefore, the correct answer is $20,000 debit, or choice C.

Question 13

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$
-According to the table above.The fair value for the property is $100,000. What amount would be booked to the "accumulated depreciation" account if Grover chooses to use the elimination method to record the revaluation?
A)$20,000 credit.
B)$40,000 debit.
C)$40,000 credit.
D)$80,000 debit.

Accepted Answer

The answer of Grover Inc wishes to use the revaluation...

Question 14

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 160,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 120,000 \
\hline
\end{array}$$ The fair value for the property is $140,000. Assuming this is the first year of using the revaluation model, what amount would be booked to profit and loss if Grover chooses to use the elimination method to record the revaluation?
A)$0
B)$20,000 credit.
C)$20,000 debit.
D)$30,000 credit.

Accepted Answer

Under the revaluation model, when an asset's carrying amount is increased due to a revaluation, the increase is recognized in other comprehensive income and accumulated in equity under revaluation surplus, not in profit or loss, unless it reverses a revaluation decrease of the same asset previously recognized in profit or loss. Since this is the first revaluation and it results in an increase in the asset's value, there is no impact on profit and loss.

Question 15

Grover Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$
-According to the table above.The fair value for the property is $20,000. What amount would be booked to the "accumulated depreciation" account if Wilson chooses to use the proportional method to record the revaluation?
A)$0
B)$30,000 debit.
C)$30,000 credit.
D)$60,000 debit.

Accepted Answer

Under the proportional method, accumulated depreciation is adjusted proportionately with the change in the gross carrying amount of the asset. 
In this case, the property is being revalued downward so the gross carrying amount will decrease by $100,000 (120,000 - 20,000). The accumulated depreciation will be adjusted proportionately by the same rate as the gross carrying amount.

Proportionate rate of accumulated calculation: 
40,000 / 120,000 = 0.333333

New accumulated depreciation balance: 
0.333333 * 100,000 = $33,333.33

To record this adjustment in the accumulated depreciation account, we need to decrease the balance by the difference between the old and new value: 
40,000 - 33,333.33 = $6,666.67.

However, since this is a revaluation decrease, we need to debit the accumulated depreciation account instead of crediting it. Therefore, the final journal entry to record the revaluation under the proportional method would be:
Accumulated depreciation account: $30,000 debit
Revaluation reserve account: $30,000 credit

Question 16

How is a revaluation loss on non-current assets accounted for?
A)Revaluation loss is booked to profit and loss.
B)Revaluation loss is booked to other comprehensive income.
C)Revaluation loss is booked to profit and loss or to other comprehensive income, depending on any pre-existing revaluation surplus.
D)Revaluation loss is not recognized in other comprehensive income.

Accepted Answer

The treatment of revaluation loss on non-current assets depends on whether there is any pre-existing revaluation surplus. If there is a pre-existing revaluation surplus, the loss is booked to other comprehensive income up to the amount of the surplus. If the loss exceeds the surplus, the excess is booked to profit and loss. If there is no pre-existing revaluation surplus, the loss is booked directly to profit and loss.

Question 17

Smith Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 60,000 \
\hline \text { Net carrying value } & 60,000 \
\hline
\end{array}$$ The fair value for the property is $150,000. What amount would be booked to the "accumulated depreciation" account if Smith chooses to use the elimination method to record the revaluation?
A)$60,000 debit.
B)$60,000 credit.
C)$90,000 credit.
D)$150,000 debit.

Accepted Answer

When using the elimination method for revaluation, the accumulated depreciation is eliminated by debiting it, which in this case is $60,000.

Question 18

Which statement is correct?
A)The revaluation model is required for non-current assets under IFRS.
B)The revaluation model is required for non-current assets under ASPE.
C)The revaluation model is optional for non-current assets under IFRS.
D)The revaluation model is optional for non-current assets under ASPE.

Accepted Answer

Under IFRS, the revaluation model is optional for non-current assets. However, if a company chooses to use the revaluation model, it must be applied to all assets within the same class. ASPE, on the other hand, does not allow the use of the revaluation model.

Question 19

Smith Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Accumulated Depreciation } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $150,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the "other comprehensive income" account if Smith chooses to use the proportional method to record the revaluation?
A)$35,000 debit.
B)$35,000 credit.
C)$70,000 debit.
D)$70,000 credit.

Accepted Answer

The answer of Smith Inc wishes to use the revaluation...

Question 20

Wallace Inc wishes to use the revaluation model for this property: $$\begin{array} { | l | r | } 
\hline & \text { Before Revaluation } \
\hline \text { Building Gross Value } & 120,000 \
\hline \text { Building Other comprehensive income } & 40,000 \
\hline \text { Net carrying value } & 80,000 \
\hline
\end{array}$$ The fair value for the property is $60,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the "other comprehensive income" account if Wallace chooses to use the proportional method to record the revaluation?
A)$0
B)$10,000 debit.
C)$10,000 credit.
D)$20,000 debit.

Accepted Answer

The answer of Wallace Inc wishes to use the revaluation...

Quiz 10: Applications of Fair Value to Non-Current Assets

How should a revaluation entry generally not be booked?

Which statement describes the "revaluation model"?

Which is correct with respect to the accounting treatment under the cost or revaluation model?

Which statement describes the "historical cost model"?

How is revaluation of non-current assets accounted for?

How is a revaluation loss on non-current assets accounted for?

Which statement is correct?