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ACCA Applied Knowledge · Financial Accounting · Disclosure notes

Dalton Co revalued its land from a carrying amount of $400,000 to $520,000 during the year, the first revaluation. The land was bought earlier at cost of $400,000. Which statement about the accounting and disclosure is correct under IAS 16?

The $120,000 increase is credited to the revaluation surplus through other comprehensive income, because there was no earlier revaluation loss in profit or loss. The note must disclose the revaluation date and the movement on the surplus. Taking it to profit or loss would be wrong.

  1. ACredit $120,000 to the revaluation surplus in other comprehensive income, and disclose the revaluation surplus movement and the date of revaluationCorrect
  2. BCredit $120,000 to profit or loss as other income, and disclose the date only
  3. CCredit $120,000 to retained earnings directly, with no disclosure of the revaluation date
  4. DLeave the land at $400,000 and disclose the fair value of $520,000 only as a note

Explanation

A first revaluation increase is credited to the revaluation surplus via other comprehensive income, as no previous decrease was recognised in profit or loss. IAS 16 requires disclosure of the effective date of revaluation and the movement on the revaluation surplus. Taking the gain to profit or loss or retained earnings is incorrect.

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