[awdal26]

Friend who is the brainy to help me solve this accounting nightmare
How shall I treatment in accounts and the financial statement using
IAS16 AND 40


Ballec PLC the year ending 31 December 2012

I) Machine B was purchased 13 June 2009 for £600,000 and estimated to have a 10 year useful life. Following a review of asset lives on 30 June 2012 the remaining estimated useful life was revised to 4 years.
ii) Building X and building Y were both purchased 5 years ago for £1m each and were estimated to have useful lives of 50 years at acquisition. Building X is used in the business of Balance plc whereas building Y is an investment property. Balance uses the fair value method as allowed by IAS40 to value investment properties.
As at 31 December 2011 both buildings were valued at £2m each and these valuations were reflected in the accounts for that year. Remaining useful lives of both buildings were revised to 50 years at that date.
At 31 December 2012 both buildings were valued at £2.5m each. These valuations are to be reflected in the accounts.
Balance plc provides depreciation on a straight line basis charging one month depreciation for each complete month of ownership.



MANY THANKS DUDS

[paraclete]

I think it is clear, various adjustments need to be made, when you have attempted the problem we will comment. How's that DUD

[awdal26]

I will reiterate

Ballec PLC the year ending 31 December 2012

I) Machine B was purchased 13 June 2009 for £600,000 and estimated to have a 10 year useful life. Following a review of asset lives on 30 June 2012 the remaining estimated useful life was revised to 4 years.
ii) Building X and building Y were both purchased 5 years ago for £1m each and were estimated to have useful lives of 50 years at acquisition. Building X is used in the business of Balance plc whereas building Y is an investment property. Balance uses the fair value method as allowed by IAS40 to value investment properties.
As at 31 December 2011 both buildings were valued at £2m each and these valuations were reflected in the accounts for that year. Remaining useful lives of both buildings were revised to 50 years at that date.
At 31 December 2012 both buildings were valued at £2.5m each. These valuations are to be reflected in the accounts.
Balance plc provides depreciation on a straight line basis charging one month depreciation for each complete month of ownership.




This is how I answered

First part II) £
Original cost 600000
Depreciation during 13/06/2009 to 31/06/2012 = 600000/10yrs = 60000 per year
Therefore 60000* 3yrs =180000 plus 6 months during 2012 = 60000* 6/12 =30000
Depreciation charger before change of useful life = 180000+30000 = £210000



Depreciation charge for the year
Cost 600000
Less Depreciation 210000
Carrying amount at 1/7/20012 390000

Remaining useful life 4 years

Remaining depreciation charge for the year 1/7/2012 to 31/12/2012= 390000/4 = 97500 * 6/12 = 48750

Finally total depreciation for the year 2012 = 60000*6/12 = 30000 + 48750 = 78750
Balance sheet ( 600000- 180000-75750) = 344250

Profit and Loss Account 75750



Part 2 Workings

II) Building X £000

Cost ( five years ago 1/1/2006 probably) 1000
Useful life 50yrs

Depreciation per year = 1000/50 =20 per year, so five years to 31/12/2011 = 20*5 = 100.

Revaluation takes place at the end of the year, so full year's depreciation must be charged.

Carrying value at the revalued date ( 1000/50 *5) 900
Valuation non current asset 2000

Gain on revaluation 1100


Dr acc depreciation 100
Dr Building X 1000
Cr Revaluation 1100



Profit and loss Depn ( not sure) 100
Other statement of comprehensive income 1100
Statement of the financial position
Non-current asset:
(2000-100) = 1900

Equity:
Revaluation reserve 1100

All of the above has already been accounted, the reason I have calculated these are to find it out the balances of the acc depreciation and Building and revaluation reserve account.

This second part is the most important part which I really need to know, because I consulted with so many books and source in the internet, they are all explaining how to account the first revaluation and the first year's decrease of the asset's cost but not double revaluations. According to this question they have revalued the building again in 31/12/2012. So I am not sure how I shall account this second revaluation which is not, according to the question reflected in the accounts.

OK now let's start….

Depreciation for the year end 31/12/2012 = 2500/50 years = 50 per year
£000
Carrying value of the non-current asset at valuation date ( 2000-50) 1950
Valuation of non-current asset 2500

Gain on revaluation 550

Dr Building X 500
Dr ACC Depreciation 50
Cr Revaluation reserve 550


Reserve transfer


Historical cost depreciation ( 1000/50yrs) 20
Revaluation depreciation charge 50

Excess depreciation to be transferred 30




Statement of comprehensive income at 31/12/2012 ( P&l) £000
Depreciation charge 50


Other statement of comprehensive income:

Revaluation Gain 550

Statement of financial position Extract 31/12/2012
Non-current assets:
Building X ( 2500-50) 2450

Equity:
Revaluation reserve :
( remaining balance 1100+550-30) 1620




Statement of changes in Equity Extract
£000 £000

Balance at 31/12/2011 1100 -
Revaluation gain at 31/12/2012 550
Transfer (30) 30

Balance at 31/12/2012 1620 30



And finally Building Y investment building IAS 40

According IAS 40 it is measured at cost and changes in Fair value are recognised in the profit and loss account unlike IAS16 SO……

£000
Original cost ( five years ago) 1000
Fair value at 31/12/2011 2000

Gain in revaluation 1000

Credit profit and loss account 1000

Balance sheet 2000

These are also accounted in the company's accounts.

Carrying value at 31/12/2012 2000
Revaluation at 31/12/2012 2500


Gains on revualtion 500

Credit profit and loss account 500

Balance sheet 2500

My questions if these are correct are we not depreciating the investment property..

Paraclete I would like to thank you for your help and I will definitely support other people as you are willing to help me here. The calculation are long and you know I am not a professional accountant, you may recalculate it and answer it in a more neatly and short cut way. Finally I am based in UK, and the questions are based on the IAS 16 and IAS 40.


AGAIN MANY THANKS FOR YOUR WORK

[paraclete]

You seem to have given a comprehensive answer. In my opinion you should not be depreciating the investment property unless it is income producing. As I do not operate in the UK I don't know the local rules and the question specifically asks you to depreciate the buildings. A second revaluation is the same as the first, the change in value is carried to the revaluation reserve and the depreciation charge reset

Your profit and loss acount in 2012 bears a charge for one year's depreciation this must be factored into your revaluation calculation

[awdal26]

Hi Paraclete thank you for commenting it back.

so if the second revaluation of the building increases , the process that will take place is for example by comparing the carrying value of the asset at date of the revaluation and then comparing it to the new revaluation

Dr the Building
Dr the ACC depreciaiton
Cr the revaluation

and remember there will be a balances in the accounts ( from last year), and then Depreciation reset to the new depreciation charge for the year as I did.

secondly if the Investment Building is generating income will my calculation be right. And if not only the revaluations will be taken to the profit and loss account and no depreciation is provided.


so Will you give a Mark for this work.


thank you.