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149 

STATEMENT OF FINANCIAL POSITION (EXTRACT) AS AT 28 FEBRUARY 

 

20X7 

20X8 

20X9 

 

$ 

$ 

$ 

Computer equipment at cost 

 

16,000 

 

16,000 

 

16,000 

Less accumulated depreciation 

 

  4,500 

 

  9,000   13,500 

Carrying amount 

 

11,500 

 

  7,000     2,500 

4.17 Example: depreciation for assets acquired part-way through  

        the year 

Brian Box prospers in his computer software business, and before long he purchases a car for himself, 

and later for his chief assistant Bill Ockhead. Relevant data is as follows. 

 

Date of purchase 

Cost 

Estimated life  Estimated residual value 

Brian Box car 

1 June 20X6 

$20,000

3 years 

$2,000 

Bill Ockhead car 

1 June 20X7 $8,000

3 

years 

$2,000 

The straight line method of depreciation is to be used. 

Prepare the motor vehicles account and motor vehicle depreciation account for the years to 28 February 

20X7 and 20X8. (You should allow for the part-year's use of a car in computing the annual charge for 

depreciation.) 

Calculate the carrying amount of the motor vehicles as at 28 February 20X8. 

Solution

 

(a) 

(i) 

Brian Box car 

Annual depreciation 

_

$(20,000  2,000)

3 years

 = 

$6,000 p.a. 

  Monthly 

depreciation 

= 

$500 

 

 

Depreciation 

1 June 20X6 – 28 February 20X7 (9 months) 

$4,500 

 

 

 

1 March 20X7 – 28 February 20X8 

$6,000 

 (ii) 

Bill 

Ockhead 

car 

Annual 

depreciation 

_

$(8,000  2,000)

3 years

 = 

$2,000 p.a. 

 

 

Depreciation 

1 June 20X7 – 28 February 20X8 (9 months) 

$1,500 

(b) MOTOR 

VEHICLES 

Date 

 

$ 

Date 

 

 

$       

1 Jun 20X6  Payables (or cash)

 

 

 

 

 

  

(car purchase) 

 

 20,000  28 Feb 20X7  Balance c/d 

 

 20,000 

1 Mar 20X7  Balance b/d 

 

20,000   

 

 

1 Jun 20X7  Payables (or cash)

 

 

 

 

 

  

(car purchase) 

 

   8,000  28 Feb 20X8  Balance c/d 

 

 28,000 

 

 

 

 28,000   

 

 

 28,000 

1 Mar 20X8  Balance b/d 

 

28,000   

 

 

MOTOR VEHICLES – ACCUMULATED DEPRECIATION 

Date  

$ 

 

Date 

 

 $       

28 Feb 20X7 

 Balance c/d 

 

 4,500   28 Feb 20X7  P/L account 

 

 4,500 

 

 

   1 Mar 20X7   Balance b/d 

 4,500 

28 Feb 20X8 

 Balance c/d 

 12,000   28 Feb 20X8  P/L account 

 7,500 

 

 

               

 (6,000+1,500)               

 

 

 12,000   

 

 

 12,000 

 

 

   1 Mar 20X8   Balance b/d 

 12,000 

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PART D: RECORDING TRANSACTIONS AND EVENTS 

 

150

 

 

STATEMENT OF FINANCIAL POSITION (WORKINGS) AS AT 28 FEBRUARY 20X8 

 

Brian Box car 

Bill Ockhead car 

Total 

 

 $     

 $      

 $      

 $      

 $      

Asset at cost 

 20,000 

 

 8,000   28,000 

Accumulated depreciation 

 

 

 

 

    Year to 28 Feb 20X7 

 4,500

  

– 

   

    Year to 28 Feb 20X8 

 6,000

 

 1,500 

 

 

 

 10,500 

 

 1,500   12,000 

Carrying amount 

   9,500 

 

 6,500   16,000 

 

5

   Revaluation of non-current assets 

IAS 16 allows entities to revalue non-current assets to fair value. 

When a non-current asset is revalued, depreciation is charged on the revalued amount. 

Largely because of inflation, it is now quite common for the market value of certain non-current assets to 

go up, in spite of getting older. The most obvious example of rising market values is land and buildings. 

IAS 16 allows entities to choose between keeping an asset recorded at cost or revaluing it to fair value 

(para. 29). An entity may decide that in order to give a fairer view of the position of the business, some 

non-current assets should be revalued, otherwise the total value of the assets of the business might 

seem unrealistically low.  

IAS 16 requires that when an item of property, plant and equipment is revalued, the whole class of 

assets to which it belongs should be revalued. A 'class' of assets is simply a group of assets of similar 

nature and use – eg land and buildings, machinery, motor vehicles, fixtures and fittings. All the items 

within a class should be revalued at the same time to prevent selective revaluation of certain assets and 

to avoid disclosing a mixture of costs and values from different dates in the financial statements 

(IAS 16, paras. 36–38). 

When non-current assets are revalued, depreciation should be charged on the revalued amount. 

5.1 Example: the revaluation of non-current assets 

When Ira Vann commenced trading as a car hire dealer on 1 January 20X1, he purchased business 

premises at a cost of $50,000. 

For the purpose of accounting for depreciation, he decided the following. 

(a) 

The land part of the business premises was worth $20,000; this would not be depreciated. 

(b) 

The building part of the business premises was worth the remaining $30,000. This would be 

depreciated by the straight line method to a nil residual value over 30 years. 

After five years of trading, on 1 January 20X6 Ira decides that his business premises are now 

worth $150,000, divided into: 

 

 $      

Land 

 75,000 

Building 

   75,000 

 

 150,000 

He estimates that the building still has a further 25 years' useful life remaining. 

Required 

(a) 

Calculate the annual charge for depreciation for the first five years of the building's life and 

the statement of financial position value of the land and building as at the end of each of 

the first five years. 

(b)  

Demonstrate the impact the revaluation will have on the depreciation charge and the  

 statement of financial position value of the land and building.  

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CHAPTER 8  

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  TANGIBLE NON-CURRENT ASSETS 

 

151 

Solution

 

(a) 

Before the revaluation, the annual depreciation charge is $1,000 per annum on the building. 

This charge is made in each of the first five years of the asset's life. 

The carrying amount of the asset will decline by $1,000 per annum, to: 

(i) 

$49,000 as at 31.12.X1 

(ii) 

$48,000 as at 31.12.X2 

(iii) 

$47,000 as at 31.12.X3 

(iv) 

$46,000 as at 31.12.X4 

(v) 

$45,000 as at 31.12.X5 

(b) 

When the revaluation takes place, the amount of the revaluation is: 

 

 $      

New asset value (to be shown in statement of financial position) 

 150,000 

Carrying amount as at end of 20X5 ($20,000 + ($30,000 – $5,000)) 

   45,000 

Amount of revaluation 

 105,000 

 

The asset will be revalued by $105,000 to $150,000. If you remember the accounting equation, 

that the total value of assets must be equalled by the total value of capital and liabilities, you 

should recognise that if assets go up in value by $105,000, capital or liabilities must also go up 

by the same amount. Since the increased value benefits the owners of the business, the amount 

of the revaluation is added to capital. 

 

However, the gain on revaluation cannot go to the statement of profit or loss, as it has not been 

realised. Instead, it is recognised in the statement of profit or loss and other comprehensive 

income, as other comprehensive income. From here, the 'gain' is transferred to a revaluation 

surplus (sometimes called a revaluation reserve), part of capital in the statement of financial 

position.  

(IAS 16, para. 39) 

 

This treatment may surprise you at first. However, a gain cannot be anticipated before it is 

realised. Therefore the gain cannot be dealt with as income in the statement of profit or loss. If 

the building were to be subsequently sold for the revalued amount, the profit would be realised 

and could be taken to retained earnings. 

 

After the revaluation, depreciation will be charged on the building at a new rate of: 

Revalued amount

Remaining useful life

= 

$75,000

25 years

 = $3,000 per year 

 

The carrying amount of the property will then be reduced by $3,000 per year over the remaining 

useful life of 25 years. 

 

One consequence of a revaluation is therefore a higher annual depreciation charge. 

 

5.2 Accounting entries 

The accounting treatment for the revaluation above will be: 

DEBIT 

Building   – Cost ($75,000 – $30,000) 

$45,000 

 

Building 

– Accumulated depreciation  

$5,000 

 

Land  

– Cost ($75,000 – $20,000) 

$55,000 

CREDIT Revaluation 

surplus 

  $105,000

 EXAM FOCUS POINT 

Be careful when calculating depreciation charge on a revalued asset. A common mistake made by 

students in past exams has been to depreciate the revalued amount over the original useful life rather 

than the remaining useful life. 

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