Travel Ltd provides tourism services to both local and foreign tourists in New Zealand. On 1 January 2019, it purchased a piece of land in Mt Eden, Auckland for constructing its permanent office building. The cost of the land was $2,500,000. Because land price was increasing in Auckland, Travel Ltd management believed that the revalued amount of land would provide more useful information to its investors and banks than cost; therefore, they adopted the revaluation model of NZ IAS 16 for land. On 30 June 2019, the company revalued the land to $3,000,000. Land price experienced only a moderate increase in the year ended 30 June 2020. On this date, the company revalued the land upward to $3,100,000. The company’s balance date is 30 June. There was no land revaluation surplus at the beginning of the year ended 30 June 2019. Required 1.Prepare the journal entries required to record the revaluation adjustment for the years ended 30 June 2019 and 30 June 2020. 2.Briefly explain how the above land revaluation will affect the statement of financial position of Travel Ltd. Also, identify and explain three related ratios that will be affected by the land revaluation. 3.Briefly explain what other information Travel Ltd shareholders would like to have regarding the above land revaluations.

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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Question

Travel Ltd provides tourism services to both local and foreign tourists in New Zealand. On 1 January 2019, it purchased a piece of land in Mt Eden, Auckland for constructing its permanent office building. The cost of the land was $2,500,000. Because land price was increasing in Auckland, Travel Ltd management believed that the revalued amount of land would provide more useful information to its investors and banks than cost; therefore, they adopted the revaluation model of NZ IAS 16 for land. On 30 June 2019, the company revalued the land to $3,000,000. Land price experienced only a moderate increase in the year ended 30 June 2020. On this date, the company revalued the land upward to $3,100,000. The company’s balance date is 30 June. There was no land revaluation surplus at the beginning of the year ended 30 June 2019.

Required

1.Prepare the journal entries required to record the revaluation adjustment for the years ended 30 June 2019 and 30 June 2020.

2.Briefly explain how the above land revaluation will affect the statement of financial position of Travel Ltd. Also, identify and explain three related ratios that will be affected by the land revaluation.

3.Briefly explain what other information Travel Ltd shareholders would like to have regarding the above land revaluations.

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