Norfolk Plc., an IFRS reporter, is revaluing equipment with a carrying value of £984,500 to its fair value of £964,500. The original cost of the equipment was £1,400,000. The equipment has a 10-year useful life and scrap value of £15,000. Norfolk uses straight-line depreciation. Assume that Norfolk eliminates all prior accumulated depreciation and adjusts the historical cost to fair value. a. What is the revaluation surplus or unrealized loss? b. Where does the firm report the revaluation surplus or unrealized loss in the financial statements? c. What are the journal entries to record the revaluation? d. What is the depreciation expense on the equipment after the revaluation? e. Norfolk chooses to take any revaluation surplus to retained earnings over the equipment's remaining useful life. What is the amount of the surplus, if any, taken to retained earnings in the year after revaluation? f. If Norfolksells the equipment at the end of the third year after revaluation for £561,571, what is the journal entry? g. Now assume that Norfolkholds the equipment. At the beginning of the fourth year after revaluation, Norfolk revalues its equipment again when the fair value is £573,571. What are the journal entries to record the revaluation? Where does the firm report the revaluation surplus or unrealized loss in the financial statements? Ignore part (f).

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Norfolk Plc., an IFRS reporter, is revaluing equipment with a carrying value of £984,500 to its fair value of £964,500. The original cost of the equipment was £1,400,000. The equipment has a 10-year useful life and scrap value of £15,000. Norfolk uses straight-line depreciation. Assume that Norfolk eliminates all prior accumulated depreciation and adjusts the historical cost to fair value.

a.	What is the revaluation surplus or unrealized loss?
b.	Where does the firm report the revaluation surplus or unrealized loss in the financial statements?
c.	What are the journal entries to record the revaluation?
d.	What is the depreciation expense on the equipment after the revaluation?
e.	Norfolk chooses to take any revaluation surplus to retained earnings over the equipment's remaining useful life. What is the amount of the surplus, if any, taken to retained earnings in the year after revaluation?
f.	If Norfolksells the equipment at the end of the third year after revaluation for £561,571, what is the journal entry?
g.	Now assume that Norfolkholds the equipment. At the beginning of the fourth year after revaluation, Norfolk revalues its equipment again when the fair value is £573,571. What are the journal entries to record the revaluation? Where does the firm report the revaluation surplus or unrealized loss in the financial statements? Ignore part (f).

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