Purple Co Ltd 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 the recoverable value of the land, resulting in a loss. This loss of $150 000 should have been recognized at that time. In the current period, since the fair value exceeds the cost, a gain of $150 000 should be recognized, and the asset revaluation reserve should be increased by the difference between the fair value and the carrying amount, which is $50 000. Therefore, option A is the correct choice.

Purple Co Ltd Purchased an Item of Land 3 Years