At 31 December 20X5 ABC, a limited liability company, owned a building that had cost $200,000 on 1 January 20W6.
It was being depreciated at 5% per year.
On 31 December 20X5 a revaluation to $250,000 was recognized. At this date the building had a remaining useful life of 10 years.
What is the balance on the revaluation surplus at 31 December 20X5 and the depreciation charge in the statement of profit or loss for the year ended 31 December 20X6 ?
Answer
Revaluation surplus = fair value – carrying amount
Revaluation surplus = (250,000 – (200,000 – (200,000 x 5% x 10)) = $150,000.
Depreciation charge = (250,000/10) = $25,000