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ACCA Applied Knowledge · Financial Accounting · Depreciation

Kappa Co has a property with a carrying amount of $800,000. An earlier revaluation created a revaluation surplus of $60,000 on this property. It is now revalued downward to $710,000. What is the effect under IAS 16?

Debit the revaluation surplus $60,000 and profit or loss $30,000. The total fall is $90,000, and IAS 16 offsets a decrease against any surplus held for the same asset first, with only the excess recognised as an expense.

  1. ADebit revaluation surplus $60,000 and debit profit or loss $30,000Correct
  2. BDebit profit or loss $90,000
  3. CDebit revaluation surplus $90,000
  4. DDebit revaluation surplus $30,000 and debit profit or loss $60,000

Explanation

The decrease is $800,000 - $710,000 = $90,000. It is first set against the existing surplus on that asset ($60,000); the remaining $30,000 is an expense in profit or loss. Charging all $90,000 to profit or loss ignores the surplus.

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