Asset Revaluation
Discuss about the Advance Financial Accounting for Technique of Balancing.
Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.
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As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets.
In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.
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In the Books of Anderson Pvt. Ltd.
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Journal Entry
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Dr.
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Cr.
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Date
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Particulars
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Amount
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Amount
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($)
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($)
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|
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Land (NSW) A/c.
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Dr.
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50,000
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|
|
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To,
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Revaluation Surplus A/c.
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50,000
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|
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(Being the book value of Land(NSW) revalued as per its Current Fair Value)
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|
|
|
|
|
|
|
|
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Buildings (NSW) A/c.
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Dr.
|
10000
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|
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Accumulated Depreciation A/c.
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Dr.
|
20000
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|
|
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To,
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Revaluation Surplus A/c.
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|
30000
|
|
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(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
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|
|
|
|
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Loss on Revaluation A/c.
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Dr.
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30000
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|
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To,
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Land (Qld.) A/c.
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30000
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(Being the book value of Land (Qld) revalued as per its Current Fair Value)
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|
|
|
|
|
|
|
|
|
|
Loss on Revaluation A/c.
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Dr.
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10000
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|
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Accumulated Depreciation A/c.
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Dr.
|
45000
|
|
|
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To,
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Buildings (Qld.) A/c.
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55000
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|
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(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
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|
|
|
|
|
|
|
|
|
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Revaluation Surplus A/c.
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Dr.
|
80000
|
|
|
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To,
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Loss on Revaluation A/c.
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|
40000
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|
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To,
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Income Statement A/c.
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40000
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(Being the excess surplus in Revaluation A/c. transferred to Income Statement)
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Ascertainment of Fair-Value of Debentures:-
Formula = C x [{1-1/(1+y)n}/y] + [V/(1+y)n]
Where, C = Coupon Payment
y = Semi-Annual Yield Rate
n = No. of Coupon Payments
V = Book Value of Debentures
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Book Value of Debentures ($)
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100000
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Coupon Rate p.a.
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6%
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Semi Annual Coupon Rate
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0.03
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Coupon Payment ($)
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3000
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Yield Rate
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4%
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Semi Annual Yield Rate
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0.02
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Total Period (in Years)
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6
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No. of Coupon Payments
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12
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Fair Value of Debentures
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110575.
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i) In the Books of Kruger Ltd.
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Journal Entry
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Dr.
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Cr.
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Date
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Particulars
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Amount
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Amount
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($)
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($)
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1st July,2015
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Cash A/c.
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Dr.
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110575
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|
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To,
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Debenture A/c.
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100000
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To,
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Security Premium A/c.
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10575
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(Being debentures issued at premium with a coupon rate of 6% p.a.)
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ii) In the Books of Kruger Ltd.
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Journal Entry
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|
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31st Dec,2015
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6% Debenture Interest A/c.
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Dr.
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3000
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To,
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6% Debenture Holders A/c.
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|
2100
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|
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To,
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Income Tax Payable A/c.
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|
900
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(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)
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|
|
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31st Dec,2015
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6% Debenture Holders A/c.
|
Dr.
|
2100
|
|
|
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To,
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Cash A/c.
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|
2010
|
|
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(Being semi-annual interest paid to 6% debenture holders)
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iii) In the Books of Kruger Ltd.
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Journal Entry
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|
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30th June ,2016
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6% Debenture Interest A/c.
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Dr.
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3000
|
|
|
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To,
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6% Debenture Holders A/c.
|
|
2100
|
|
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To,
|
Income Tax Payable A/c.
|
|
900
|
|
|
(Being interest due for 6 months on 6% debentures and 30% tax deducted at source)
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|
|
|
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|
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30th June ,2016
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6% Debenture Holders A/c.
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Dr.
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2100
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To,
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Cash A/c.
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|
2010
|
|
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(Being semi-annual interest paid to 6% debenture holders)
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|
|
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30th June ,2016
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Income Tax Payable A/c.
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Dr.
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1800
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|
|
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To,
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Cash A/c.
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|
1800
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|
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(Being tax deducted on interest paid)
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|
|
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30th June ,2016
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Income Statement A/c.
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Dr.
|
4020
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|
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To,
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6% Debenture Interest A/c.
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4020
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(Being interest on debenture transferred to Income Statement)
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|
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Calculation for Yearly Gross Profit:-
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| |
|
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2015
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2016
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2017
|
|
Cost for the year
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10
|
18
|
12
|
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Total Estimated Cost of the Contract
|
40
|
40
|
40
|
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Percentage of Completion
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25.00%
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45.00%
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30.00%
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Total Contract Value
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50
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50
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50
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Revenue Recognized
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12.5
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22.5
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15
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Gross Profit
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2.5
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4.5
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3
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In the Books of Sun City Ltd.
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Journal Entry
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Dr.
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Cr.
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|
Date
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Particulars
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Amount
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Amount
|
|
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|
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($)
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($)
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|
2015
|
Construction in Process A/c.
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Dr.
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2.5
|
|
|
|
Construction Expenses A/c.
|
Dr.
|
10
|
|
|
|
To,
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Construction Revenue A/c.
|
|
12.5
|
|
|
|
|
|
|
|
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Pretoria Limited A/c.
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Dr.
|
12
|
|
|
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To,
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Billings A/c.
|
|
12
|
|
|
|
|
|
|
|
|
Cash A/c.
|
Dr.
|
11
|
|
|
|
To,
|
Pretoria Limited A/c.
|
|
11
|
|
|
|
|
|
|
In the Books of Sun City Ltd.
|
|
Journal Entry
|
| |
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
Amount
|
Amount
|
|
|
|
|
($)
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($)
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|
2015
|
Construction in Process A/c.
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Dr.
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2
|
|
|
|
Construction Expenses A/c.
|
Dr.
|
10
|
|
|
|
To,
|
Construction Revenue A/c.
|
|
12
|
|
|
|
|
|
|
|
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Pretoria Limited A/c.
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Dr.
|
12
|
|
|
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To,
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Billings A/c.
|
|
12
|
|
|
|
|
|
|
|
|
Cash A/c.
|
Dr.
|
11
|
|
|
|
To,
|
Pretoria Limited A/c.
|
|
11
|
|
|
|
|
|
Asset revaluation serves as a technique of balancing the assets carrying value if any vital changes take place in of the fixed asset’s fair market value. Variations taking place in several factors such as time value of money and inflation rate might result in changes in the book value and market value of the assets. This can result in preparation of unreliable financial statements. Revaluation of assets is done to address such variations in market value and book value of assets to prepare accurate financial statements.
As per AASB 116 of Australian Accounting Standard, revaluation of the assets including plant, property and equipment fair value of those is reliably measured and carried at a revealed amount. This is in consideration that its fair value at its revaluation date deducted from any accumulated impairment losses. Revaluation of these assets is done with adequate regularity for making sure that the amount carried is not materially different from that, which is calculated using fair value at the reporting period end. When a plant, property and equipment are revalued, any type of accumulated depreciation is anticipated on the revaluation date against the asset’s net and gross carrying amount. This is further restated to the revalued amount of assets.
In the asset revaluation, each part of a property, plant and equipment with is cost which is significant in accordance to the items total cost is separately depreciated. The net revaluation method is documented in several inclusive incomes to the level of the credit balance prevalent in any excess revaluation in accordance of same asset class.
|
In the Books of AD Pvt. Ltd.
|
|
Journal Entry
|
| |
|
|
Dr.
|
Cr.
|
|
Date
|
Particulars
|
Amount
|
Amount
|
|
|
|
|
($)
|
($)
|
|
|
Land (NSW) A/c.
|
Dr.
|
50,000
|
|
|
|
To,
|
Revaluation Surplus A/c.
|
|
50,000
|
|
|
(Being the book value of Land(NSW) revalued as per its Current Fair Value)
|
|
|
|
|
|
|
|
|
|
|
Buildings (NSW) A/c.
|
Dr.
|
10000
|
|
|
|
Accumulated Depreciation A/c.
|
Dr.
|
20000
|
|
|
|
To,
|
Revaluation Surplus A/c.
|
|
30000
|
|
|
(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
|
|
|
|
|
|
|
|
|
|
|
Loss on Revaluation A/c.
|
Dr.
|
30000
|
|
|
|
To,
|
Land (Qld.) A/c.
|
|
30000
|
|
|
(Being the book value of Land (Qld) revalued as per its Current Fair Value)
|
|
|
|
|
|
|
|
|
|
|
Loss on Revaluation A/c.
|
Dr.
|
10000
|
|
|
|
Accumulated Depreciation A/c.
|
Dr.
|
45000
|
|
|
|
To,
|
Buildings (Qld.) A/c.
|
|
55000
|
|
|
(Being the book value of Building (NSW) revalued as per its Current Fair Value after adjusting with the related accumulated depreciation)
|
|
|
|
|
|
|
|
|
|
|
Revaluation Surplus A/c.
|
Dr.
|
80000
|
|
|
|
To,
|
Loss on Revaluation A/c.
|
|
40000
|
|
|
To,
|
Income Statement A/c.
|
|
40000
|
|
|
(Being the excess surplus in Revaluation A/c. transferred to Income Statement)
|
|
|
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Horngren, C.T., Sundem, G.L., Schatzberg, J.O. and Burgstahler, D., (2013).Introduction to management accounting. London: Pearson Higher Ed
Jakob, K., (2016). BFIN 429.02: Financial Management I-Theory and Analysis. Berlin: PHI Learning.
Kaplan, R.S. & Atkinson, A.A., (2015). Advanced management accounting. Berlin: PHI Learning.
Neely Jr, P. & Muhammad, R., (2016). Fair Value Accounting on the Housing Crisis. Business and Management Studies, 2(3), 1-8.
Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y. & Salvi, A., (2014).Corporate finance: theory and practice. New Jersey: John Wiley & Sons.
Weil, R.L., Schipper, K. & Francis, J., (2013). Financial accounting: an introduction to concepts, methods and uses. London: Cengage Learning.
Yao, D.F.T., Percy, M. & Hu, F., (2015). Fair value accounting for non-current assets and audit fees: evidence from Australian companies. Journal of Contemporary Accounting & Economics, 11(1), 31-45.
