Q Reflect the revaluation of the asset and the subsequent depreciation of the revalued asset Home, - Which of the equity accounts would be affected Question: An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders' equity, before adjusting for the above revaluation and subsequent depreciation, is as follows: Share capital 600 000 Revaluation surplus 90 000 Capital profits reserve 170 000 Retained earnings 140 000 Total 1 000 000 Required: Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation? ANSWER:The total revaluation increment generally highlights the difference in value between the carrying amount and the fair value of an asset. Thus, for the given scenario the total revaluation increment will be-$240 000 - ( $200 000 - $40 000 ) = $ 80 000 Required Journal Entries for the revaluation of the asset and accumulated depreciation Particulars L/F Debit ( Dr ) ( Amount in $ ) Credit ( Dr ) ( Amount in $ ) Accumulated depreciation A/c $40,000 To Assets A/c $40,000 ( Being offset of the accumulated depreciation against the considered asset ) Asset A/c $80,000 To Gain on revaluation A/c $80,000 ( Being to recognise the revaluation ) Gain on revaluation A/c $80,000 To Revaluation Surplus A/c $80,000 ( Being transfer of gain to revaluation surplus at the end of accounting period ) Table 1: Journal entries The above table (Table 1) has presented the journal entries for reflecting the revaluation of the asset and the subsequent depreciation of the considered revalued assets. From the given journal entries, it can be identified that from the shareholders' equity accounts the revaluation surplus would be affected directly. Due to the revelation the gain on revaluation account balance, that is $80,000, is required to be transferred to revaluation surplus account at the end of the considered accounting period. In this process, it is essential to highlight that the total value of the revelation surplus of the entity at the end of the period would be $170,000 (i.e., $90,000 + $80,000). This, in turn, would also increase the overall total value of the shareholders' equity of the organisation to $1,080,000. Calculation of value of total shareholders' equity at the end of the period Details Amount ( in $ ) Share capital $600,000 Revaluation surplus $170,000 Capital profits reserve $170,000 Retained earnings $140,000 Total $1,080,000 Related: Which of the equity accounts would be affected Calculation of goodwill value Annual outstanding per share of stock Restoration of a oil extraction project How does it reduce foreign currency risk exposure
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