Question

Synergy Ltd. purchased a building in 2008 for €20,000,000 and as of December 31, 2014 had recorded accumulated depreciation on the building of €6,000,000. On December 31, 2014, the company conducted its first revaluation when the fair value was €24,000,000. Under IAS 16, the journal entry recorded on this date would include:

Answer 1

Answer:

Under IAS 16, the journal entry recorded on this date would include:

Debit Building (cost = €24m -€20m)                               €4000,000

Debit Accumulated depreciation - Building                   €6,000,000

Credit Revaluation reserve (Gain on revaluation)         €10,000,000

(To recognize the revaluation of building)

Explanation:

Based on IAS 16, gains arising from revaluation of assets are always credited to Equity, under revaluation reserve caption, unless such gains reverse the previously recognized losses on the assets in the income statement. In that case, the revaluation gains would be taken to income statement.

Revaluation gains are unrealized gains. They become realized when the assets are disposed (sold) or derecognized from the books.