Robertson Inc. prepares its financial statements according to International Financial Reporting Standards. At the end of its 2013 fiscal year, the company chooses to revalue its equipment. The equipment cost $540,000, had accumulated depreciation of $240,000 at the end of the year after recording annual depreciation, and had a fair value of $330,000. After the revaluation, the accumulated depreciation account will have a balance of:
A)$240,000.
B)$264,000.
C)$270,000.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

After revaluation, the carrying amount of the equipment will be increased to $330,000, which is its fair value. The difference between the fair value and the previous carrying amount of $300,000 ($540,000 cost - $240,000 accumulated depreciation) will be recognized as a revaluation surplus. Therefore, the new carrying amount will be $330,000, and the revaluation surplus will be $30,000. The accumulated depreciation will be adjusted to reflect the new carrying amount, which will be $264,000 ($330,000 carrying amount - $66,000 annual depreciation computed as [$540,000 - $330,000]/[useful life in years]). Therefore, the correct answer is B.