Use the following information to answer the next two questions.
Franco Company uses IFRS and owns property, plant and equipment with a historical cost of 5,000,000 euros. At December 31, 2013, the company reported a valuation reserve of
8,565,000 euros. At December 31, 2014, the property, plant and equipment was appraised at
5,525,000 euros.
-The valuation reserve at December 31, 2014 will be reported at
A) 8,040,000 euros on the Statement of Stockholders' Equity.
B) 8,565,000 euros in the Assets section of the Statement of Financial Position
C) 9,090,000 euros in the equity section of the Statement of Financial Position.
D) 525,000 euros on the Income Statement.

Question

Quizplus · Accepted Answer

The valuation reserve is an equity account and will be reported in the equity section of the Statement of Financial Position. The reserve balance at December 31, 2013 is given at 8,565,000 euros. The difference between the historical cost of property, plant and equipment and its appraised value at December 31, 2014 is (5,000,000 - 5,525,000) = -525,000 euros. This indicates that the company needs to reduce the valuation reserve by the same amount (-525,000 euros) to reflect the decline in value of property, plant and equipment. Therefore, the valuation reserve at December 31, 2014 will be reported as 8,565,000 - 525,000 = 9,090,000 euros in the equity section of the Statement of Financial Position.

Use the Following Information to Answer the Next Two Questions