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ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets

Zeta Co has a policy of revaluing its land. The land was bought for $200,000 and has never been revalued. It is now valued at $260,000. What is the correct accounting entry to record the revaluation under IAS 16?

Debit land and credit revaluation surplus with $60,000. The gain is the increase from carrying amount $200,000 to fair value $260,000, and IAS 16 requires it to be recognised in other comprehensive income, not profit or loss, as there is no earlier deficit.

  1. ADr Land $60,000; Cr Revaluation surplus (other comprehensive income) $60,000Correct
  2. BDr Land $60,000; Cr Profit or loss $60,000
  3. CDr Revaluation surplus $60,000; Cr Land $60,000
  4. DDr Land $260,000; Cr Revaluation surplus $260,000

Explanation

The increase is 260,000 - 200,000 = 60,000. Under IAS 16 a first revaluation gain is credited to the revaluation surplus through other comprehensive income, not profit or loss. Crediting profit or loss would be wrong because there was no previous revaluation deficit to reverse.

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