CHAPTER 60

REVALUATION

Problem 60-1(ACP)
On January 1, 2013, Raven Company acquired a building at cost of P5,000,000. The building has
been depreciated on the basis of a 20-year life.

On January 1, 2018, an appraisal of the building showed replacement cost at P8,000,000 with no
change in useful life.

1. Before income tax, what amount should be credited to revaluation surplus on January 1,
2018?
a. 3,000,000
b. 2,250,000
c. 4,250,000
d. 6,000,000

2. What is the depreciation for 2018?

a. 250,000
b. 150,000
c. 400,000
d. 300,000

3. What is the revaluation surplus that should be reported in the December 31, 2018 statement
of financial position?
a. 2,100,000
b. 2,250,000
c. 1,850,000
d. 2,800,000

Solution 60-1
Question 1 - Answer b
Replacement
Cost cost Appreciation
Building 5,000,000 8,000,000 3,000,000
Accumulated depreciation
(25%) 1,250,000 2,000,000 750,000
CA / SV / RS 3,750,000 6,000,000 2,250,000
Percentage of accumulated depreciation
(5 years expired / 20 years) 25%

Question 2 - Answer c
Depreciation (6,000,000 / 15 years remaining) 400,000

Question 3 - Answer a
Revaluation surplus - January 1, 2018 2,250,000
Piecemeal realization in 2018 (2,250,000 / 15) ( 150,000)
Revaluation surplus – December 31, 2018 2,100,000

Journal entries in 2018

1. Building 3,000,000
Accumulated depreciation 750,000
Revaluation surplus 2,250,000
2. Depreciation 400,000
Accumulated depreciation 400,000
3. Revaluation surplus 150,000
Retained earnings 150,000

Problem 60-2 (IFRS)

On June 30, 2018, Louisiana Company reported the following information:

Equipment at cost 5,000,000

Accumulated depreciation 1,500,000

The equipment was measured using the cost model and depreciated on a straight line basis over
a 10-year period.

On December 31, 2018, the management decided to change the basis of measuring the
equipment from the cost model to the revaluation model.

The equipment had a fair value of P4,550,000 with remaining useful life of 5 years on December
31, 2018.

1. What amount should be reported as pretax revaluation surplus on December 31, 2018?
a. 1,050,000
b. 1,300,000
 c. 1,500,000
d. 2,000,000

2. What is the depreciation of the equipment for 2019?

a. 500,000
b. 910,000
c. 455,000
d. 650,000

3. What amount should be reported as pretax revaluation surplus on December 31, 2019?
a. 1,170,000
b. 1,040,000
c.390,000
d.845,000

Solution 60-2
Question 1 Answer b
Cost – June 30, 2018 5,000,000
Accumulated depreciation (1,500,000)
Carrying amount - June 30, 2018 3,500,000
Depreciation from July 1 to December 31, 2018
(5,000,000/10 x 6/12) (250,000)
Carrying amount - December 31, 2018 3,250,000

Fair value – December 31, 2018 4,550,000

Carrying amount - December 31, 2018 3,250,000
Revaluation surplus – December 31, 2018 1,300,000

The fair value is already the sound value or revalued amount of the equipment.

Question 2 Answer b
Depreciation for 2019 (4,550,000 / 5 years) 910,000

Question 3 Answer b
Revaluation surplus – December 31, 2018 1,300,000
Realization of revaluation surplus in 2019
(1,300,000 / 5 years) (260,000)
Revaluation surplus – December 31, 2019 1,040,000

Problem 60-3 (IAA)

On January 1, 2013, Boston Company purchased a new building at a cost of P6,000,000.
Depreciation was computed on the straight line basis at 4% per year.

On January 1, 2018, the building had a fair value of P8,000,000.

1. What is the depreciation for 2018?

a. 320,000
b. 400,000
c. 100,000
d. 240,000

2. What is the revaluation surplus on December 31, 2018?

a. 3,072,000
b. 1,900,000
c. 3,040,000
d. 1,920,000

Solution 60-3
Question 1 Answer b
Accumulated depreciation (4% x 5 years expired)
Life of asset (5 years / 20%) 25 years
Expired (5)
Remaining life 20

Depreciation for 2018 (8,000,000/20) 400,000

Question 2 Answer c
Fair value 8,000,000
Carrying amount (6,000,000 x 80%) 4,800,000
Revaluation surplus - January 1, 2018 3,200,000
Realization in 2018 (3,200,000/20) (160,000)
Revaluation surplus - December 31, 2018 3,040,000
Problem 60-4 (IAA)
Cycle Company provided the following account balances relating to property, plant and
equipment on January 1, 2018.

Land 2,000,000
Building 15,000,000
Accumulated depreciation 3,750,000
Machinery 3,000,000
Accumulated depreciation 1,500,000

Assets have been carried at cost since their acquisition. All assets were acquired on January 1,
2008. The straight line method is used.

On January 1, 2018, the entity revalued the property, plant and equipment. On such date,
competent appraisers submitted the following:

Replacement cost
Land 5,000,000
Building 25,000,000
Machinery 5,000,000

1. What is the revaluation surplus on January 1, 2018?

a. 15,000,000
b. 11,500,000
c. 30,000,000
d. 8,500,000

2. What is the depreciation for 2018?

a. 531,250
b. 875,000
c. 525,000
d. 625,000

3. What is the revaluation surplus on December 31, 2018?

a. 11,075,000
b. 11,150,000
c. 11,050,000
d. 10,850,000
Solution 60-4
Question 1 -- Answer b
Percentage of accumulated depreciation
Building (3,750,000/15,000,000) 25%
Machinery (1,500,000/ 3,000,000) Useful life 50%

Useful Life
Building (10 years expired / 25%) 40 years
Machinery (10 years expired / 50%) 20 years

Sound Carrying Revaluation

Value amount surplus
Land 5,000,000 2,000,000 3,000,000
Building (25,000,000 x 75%) 18,750,000 11,250,000 7,500,000
Machinery ( 5,000,000 x 50%) 2,500,000 1,500,000 1,000,000
11,500,000

Question 2 - Answer b
Depreciation - building (18,750,000/30 years remaining) 625,000
Depreciation - machinery ( 2,500,000/ 10 years remaining) 250,000
Total 875,000

Question 3 - Answer. b
Revaluation surplus - January 1, 2018 11,500,000
Piecemeal realization in 2018:
Building (7,500,000/30) (250,000)
Machinery (1,000,000/10) (100,000)
Revaluation surplus - December 31, 2018 11,150,000

Problem 60-5 (IAA)

On January 1, 2018, Cool Company owned an equipment costing P5,200,000 with residual value
of P400,000.

The life of the asset is 10 years and was depreciated using the straight line method.

On such date, the equipment has a replacement cost of P8,000,000 with residual value of
P200,000. The age of the asset is 4 years.
The appraisal of the equipment showed a total revised useful life of 12 years and the entity
decided to carry the equipment at revalued amount.

1. What amount should be reported as pretax revaluation surplus on January 1, 2018?

a. 1,600,000
b. 2,600,000
c. 1,680,000
d. 6,680,000

2. What amount should be reported as pretax revaluation surplus on December 31 2018?

a. 1,440,000
b. 1,400,000
c. 2,450,000
d. 2,520,000

3. What is annual depreciation subsequent to revaluation?

a. 468,000
b. 390,000
c. 585,000
d. 975,000

Solution 60-5
Question 1 Answer a
Replacement
Cost cost Appreciation
Equipment 5,200,000 8,000,000 2,800,000
Residual value (200,000) (200,000) -
Depreciable amount 5,000,000 7,800,000 2,800,000
Accumulated depreciation
(40% x 4,800,000) 1,920,000
(40% x 7,800,000) _________ 3,120,000 1,200,000
Balance 3,080,000 4,680,000 1,600,000

Percentage of accumulated depreciation

(4 years expired / 10 years original life) 40%
Question 2 Answer b

Revaluation surplus - January 1, 2018 1,600,000

Realized in 2018 (1,600,000/ 8 years) (200,000)
Revaluation surplus - December 31, 2018 1,400,000

Revised useful life 12 years

Age of asset 4
Remaining revised life 8 years

Question 3 Answer c
Subsequent annual depreciation (4680,000 7 8 years) 585,000

Problem 60-6 (PHILCPA Adapted)

On January 1, 2018, Sabangan Company reported the following account balances:

Cost Accumulated depreciation

Land 50,000,000
Building 300,000,000 90,000,000

The land and building were revalued on January 1, 2018 and the revaluation revealed the
following sound value:

Land 70,000,000
Building 315,000,000

There were no additions or disposals during 2018. Depreciation is computed on the straight line.
The estimated life of the building is 20 years.

1. What amount should be recognized as pretax revaluation surplus on January 1, 2018?

a. 125,000,000
b. 105,000,000
c. 385,000,000
d. 315,000,000

2. What is the depreciation for 2018?

a. 22,500,000
b. 15,000,000
 c. 15,750,000
d. 27,500,000

3. What amount should be reported as pretax revaluation surplus on December 31, 2018?
a. 117,500,000
b. 125,000,000
c. 105,000,000
d. 119,750,000

Solution 60-6
Question 1 Answer a

Sound value Carrying amount Revaluation surplus

Land 70,000,000 50,000,000 20,000,000
Building 315,000.000 210,000,000 105,000,000
Total 385,000,000 260,000,000 125,000,000

Question 2 Answer a
Percentage of accumulated depreciation
(90,000,000/300,000,000) 30%
Remaining useful life (70% x 20 years) 14 years

Subsequent annual depreciation (315,000,000 / 14) 22,500,000

Question 3 Answer a
Revaluation surplus – January 1, 2018 125,000,000
Realization of revaluation surplus on building
(105,000,000 / 14) (7,500,000)
Revaluation surplus - December 31, 2018 117,500,000

The revaluation surplus on building is realized annually over the remaining life of the building.

The revaluation surplus on land is not realized annually because the land is nondepreciable.

The revaluation surplus is realized in full upon disposal of the land.

Problem 60-7 (PHILCPA Adapted)
Kibungan Company provided the following information on January 1. 2018 relating to property,
plant and equipment.

Land 30,000,000
Building 300,000,000
Accumulated depreciation - building ( 37,500,000)
Machinery 400,000,000
Accumulated depreciation - machinery (100,000,000)
Carrying amount 592,500,000

There were no additions or disposals during 2018. Depreciation is computed using straight line
over 20 years for building and 10 years for machinery.

On June 30, 2018, all of the property, plant and equipment were revalued.
Replacement cost Sound value
Land 40,000,000 40,000,000
Building 500,000,000 425,000,000
Machinery 650,000,000 455,000,000

1. What is the pretax revaluation surplus on June 30, 2018?

a. 355,000,000
b. 920,000,000
c. 345,000,000
d. 327,500,000

2. What is the total depreciation for 2018?

a. 72,500,000
b. 90,000,000
c. 55,000,000
d. 66,750,000

3. What is the pretax revaluation surplus on December 31, 2018?

a. 337,500,000
b. 355,000,000
c. 345,000,000
d. 327,500,000
Solution 60-7
Question 1 - Answer a
Depreciation on cost from January 1 to June 30, 2018:
Building (300,000,000/20 x 6/12) 7,500,000
Machinery (400,000,000/10 x 6/12) 20,000,000

Sound Carrying Revaluation

Value amount surplus
Land 40,000,000 30,000,000 10,000,000
Building 425,000,000 255,000,000 170,000,000
Machinery 455,000,000 280,000,000 175,000,000
Total - 6/30/2018 920,000,000 565,000,000 355,000,000

Question 2 - Answer a
Percentage of accumulated depreciation - June 30, 2018:
Building (37,500,000 +7,500,000/300,000,000) 15%
Machinery (100,000,000 + 20,000,000 / 400,000,000) 30%

Remaining useful life:

Building (20 years x 85%) 17 years
Machinery (10 years x 70%) 7 years

Building:
January to June 30, 2018 7,500,000
July 1 to December 31, 2018
(425,000,000/ 17 x 6/12) 12,500,000 20,000,000

Machinery:
January 1 to June 30, 2018 20,000,000
July 1 to December 31, 2018
(455,000,000/ 7 x 6/12) 32,500,000 52,500,000
Total depreciation for 2018 72,500,000

Question 3 - Answer a
Revaluation surplus - June 30, 2018 355,000,000
Piecemeal realization from July 1 to December 31, 2018:
Building (170,000,000/ 17 x 6/12) ( 5,000,000)
Machinery (175,000,000/ 7 x 6/12) ( 12,500,000)
Revaluation surplus - December 31, 2018 337,500,000

Problem 60-8 (IAA)

On January 1, 2018, Divine Company provided the following information relating to the
revaluation of an equipment:
Cost Replacement cost
Equipment 6,500,000 9,200,000
Residual value 500,000 200,000
Useful life 12
Age of the equipment 2
Accumulated depreciation ? ?

The equipment was sold on December 31, 2018 for P8,000,000.

1. What is the pretax revaluation surplus on January 1, 2018?

a. 2,700,000
b. 2,200,000
c. 2.500.000
d. 2,000,000

2. What is the depreciation for 2018?

a. 530,000
b. 900,000
c. 750,000
d. 220,000

3. What is the pretax revaluation surplus on December 31, 2018?

a. 2,200,000
b. 2,250,000
c. 2,430,000
d. 1,980,000

4. What amount of gain on sale of equipment should be recognized on December 31, 2018?
a. 1,050,000
b. 3,030,000
c. 3,230,000
d. 300,000
Solution 60-8
Question 1 Answer b

Cost Replacement cost Appreciation

Equipment 6,500,000 9,200,000 2,700,000
Residual value (_200,000) (200,000) __________
Depreciable amount 6,300,000 9,000,000 2,700,000
Accumulated depreciation
(6,000,000/12 x.2). (1,000,000)
(9,000,000/12 x 2) ________ (1,500,000) (500,000)
Remaining depreciable amount 5,300,000 7,500,000 2,200,000

Question 2 Answer c
Depreciation for 2018 (7,500,000/10 years remaining) 750,000

Question 3 Answer d

Revaluation surplus - January 1, 2018 2,200,000

Realization in 2018 (2,200,000/10) (220,000)
Revaluation surplus - December 31, 2018 1,980,000

Question 4 Answer a
Replacement cost of equipment 9,200,000
Accumulated depreciation - December 31, 2018 (2,250,000)
Carrying amount - December 31, 2018 6,950,000

Accumulated depreciation - January 1, 2018 1,500,000

Depreciation for 2018 (7,500,000/10) 750,000
Accumulated depreciation - December 31, 2018 2,250,000

Sale price 8,000,000

Carrying amount (6,950,000)
Gain on sale of equipment 1,050,000

The revaluation surplus of P1,980,000 on December 31, 2018 should transferred to retained
earnings upon disposal of the equipment.
Problem 60-9 (IFRS)
London Company owned a building on January 1, 2018 with historical cost of P40,000,000. The
property is depreciated over 40 years on a straight line basis with no residual value.

The entity adopted a policy of revaluation of property. The building had so far been revalued
twice at fair value.

January 1, 2019 46,800,000

January 1, 2021 55,500,000

1. What is the revaluation surplus on January 1, 2019?

a. 7,800,000
b. 6,800,000
c. 5,800,000
d. 4,800,000

2. What is the increase in revaluation surplus to be recognized as component of other

comprehensive income on January 1, 2021?
a. 15,500,000
b. 11,100,000
c. 8,700,000
d. 9,900,000

3. What is the revaluation surplus to be reported in the statement of changes in equity for the
year ended December 31, 2021?
a. 18,200,000
b. 18,000,000
c. 18,900,000
d. 18,500,000

Solution 60-9
Question 1 Answer a

Cost -- January 1, 2018 40,000,000

Accumulated depreciation - December 31, 2018
(40,000,000/40) (1,000,000)
Carrying amount - January 1, 2019 39,000,000
Fair value – January 1, 2019 46,800,000
Carrying amount – January 1, 2019 39,000,000
Revaluation surplus - January 1, 2019 7,800,000

Question 2 Answer b
Fair value - January 1, 2019 46,800,000
Accumulated depreciation - December 31, 2020:
2019 (46,800,000/39) 1,200,000
2020 1,200,000 ( 2,400,000)
Carrying amount - January 1, 2021 44,400,000

Fair value - January 1, 2021 55,500,000

Carrying amount - January 1, 2021 44,400,000
Increase in revaluation surplus - January 1, 2021 11,100,000

Question 3 Answer b
Revaluation surplus - January 1, 2019 7,800,000
Increase in revaluation surplus - January 1, 2021 11,100,000
Total 18,900,000

Annual realization of revaluation surplus:

2019 (7,800,000/39) (200,000)

2020 (200,000)
2021 (200,000)
2021 (11,100,000 (37) (300,000)
Revaluation surplus - December 31, 2021 18,000,000