Carla Ltd. purchased a building on January 1, 2015 for $14,860,000. Carla accoun
ID: 2584542 • Letter: C
Question
Carla Ltd. purchased a building on January 1, 2015 for $14,860,000. Carla accounted for this asset using the revaluation model, and revalued the building every two years. The building was estimated to have a useful life of 30 years with no residual value, and Carla used straight-line depreciation. On December 31, 2016, the building had a fair value of $14,059,334. On December 31, 2018, the building had a fair value of $12,779,600. Prepare the journal entries on the books of Carla Ltd. to revalue the building on December 31, 2016 and December 31, 2018 using the asset adjustment method.
Explanation / Answer
Cost of asset = $14860000 Depreciation per annum (14860000/30) = $495333 Carrying value of building as on Dec 31, 2016 before adjustment = $14860000-495333-495333 = $13869334 Fair value as on Dec 31, 2016 = $14059334 Carrying value of building as on Dec 31, 2016 after adjustment = $14059334 Revised depreciation per annum (14059334/28) = $502119 Carrying value of building as on Dec 31, 2018 before adjustment = $14059334-$502119-$502119 = $13055096 Fair value as on Dec 31, 2016 = $12779600 Carla Ltd. JOURNAL Date Account Head & Description Debit Amount Credit Amount Dec 31, 2016 Building (14059334-13869334) 190000 Revaluation reserve 190000 (to record the adjustment entry for revaluation) Dec 31, 2018 Revaluation reserve 190000 Loss on revaluation (275496-190000) 85496 Building (13055096-12779600) 275496 (to record the adjustment entry for revaluation)