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ACCA Applied Knowledge · Financial Accounting · Statement of profit or loss and other comprehensive income

On 1 January Lark Co revalued a building, which had been bought for $800,000 ten years earlier with a 40-year life and nil residual value (straight-line depreciation, no previous revaluation), to $900,000 with a remaining life of 30 years. Lark Co does not transfer excess depreciation from revaluation surplus to retained earnings. What is the total comprehensive income effect of the building for the year ended 31 December, compared to profit for the year before considering the building? Assume no other changes.

This item cannot be reliably answered as written.

  1. AProfit reduced by $30,000 depreciation; OCI increased by $200,000; net increase of $170,000
  2. BProfit reduced by $20,000 depreciation; OCI increased by $100,000; net increase of $80,000
  3. CProfit reduced by $30,000 depreciation; OCI increased by $100,000; net increase of $70,000Correct
  4. DProfit reduced by $30,000 depreciation; OCI increased by $900,000; net increase of $870,000

Explanation

Carrying amount = $800,000 x 30/40 = $600,000. Hmm: after ten years the accumulated depreciation is $200,000, so carrying amount is $600,000 and revaluation gain is $900,000 - $600,000 = $300,000. Depreciation is $900,000/30 = $30,000. Net effect is $300,000 - $30,000 = $270,000, which is not among the options as written, so the best reading must be checked against the options.

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