GAAP: Graded Questions
Property, plant and equipment: revaluation model
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Question 8.9
Part A
Peasy Limited purchased a specialised item of plant, details of which are as follows:
Cost (purchased on credit)
C660 000
Date of purchase
1 January 20X4
Useful life
5 years
Residual value
Nil
Depreciation method
Straight-line
This item of plant is measured under the revaluation model and had the following fair values:
1 January 20X6
C528 000
1 January 20X7
C440 000
Peasy Limited transfers the realised portion of the revaluation surplus to retained earnings over the
useful life of the plant.
Required:
Prepare the journals for the plant for the years ended 31 December 20X4 to 20X7 assuming:
a) The gross replacement value method is used.
b) The net replacement value method is used.
Part B
Assume the same scenario as in Part A above.
Required:
To the extent of the information available, prepare an extract from the statement of changes in equity and
the property, plant and equipment note of Peasy Limited for the years ended 31 December 20X6 and 20X7
in accordance with International Financial Reporting Standards.
Accounting policies and comparatives are not required.
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Question 8.10
Burgundy Limited purchased a plant on 2 January 20X1 for C80 000. The plant is measured under the
revaluation model, using the net replacement value method, and is depreciated on the straight-line
basis, over its estimated economic useful life of 5 years, to a nil residual value.
The following fair values were measured by an independent valuer using the cost approach (often called
the current replacement cost):
Date Fair value
01 January 20X2 C96 000
01 January 20X3 C40 000
01 January 20X4 C40 000
Burgundy transfers a portion of the revaluation surplus to retained earnings on an annual basis.
There were no indications of impairment at the end of any of the years.
Required:
Show all related journal entries for the years ended 31 December 20X2, 20X3 and 20X4.
Ignore tax.
80
Chapter 8
