Purple Co Plc purchased an item of land 3 years ago at a cost of £700 000.Two years ago the recoverable value of the land was considered to be £550 000.In the current period the land is revalued and the fair value is now £750 000.What is the treatment of the change in value in each of the periods?

Question

Quizplus · Accepted Answer

Two years ago, there was a decrease in recoverable value of £150 000, which is recognized as a loss in the income statement. 
In the current period, since the fair value of the land has increased, there is a gain of £150 000 which is recognized in the income statement. In addition, there is an increase in the asset revaluation reserve of £50 000, which represents the difference between the fair value (£750 000) and the carrying value (£700 000) of the land. Therefore, choice A is the best option.

Purple Co Plc Purchased an Item of Land 3 Years