Gillet Limited acquired a block of land for $150 000 on 1 January 2012. This amount was also the tax base of the land. On 30 June 2014, the land was revalued to $200 000. The tax rate is 30%. The appropriate journal entry to recognise the net effect of the revaluation is which of the following?

Question

Quizplus · Accepted Answer

The appropriate journal entry to recognise the net effect of the revaluation is to increase the carrying value of the land to $200,000 and recognise the deferred tax liability for the tax consequences of the revaluation.

The journal entry would be:

DR Land $50,000 
CR Asset revaluation surplus $35,000 
CR Deferred tax liability $15,000

Option A is incorrect because there is no need to recognise a gain on revaluation in OCI as the increase in value is already reflected in the revaluation surplus.

Option B is incorrect because only a deferred tax asset should be recognised if the tax base of the asset is higher than the carrying amount, which is not the case in this scenario.

Option D is incorrect because income tax expense - OCI is not a valid account and there is no need to recognise income tax expense in OCI.

Gillet Limited Acquired a Block of Land for $150 000