The following information is available for the year ended 31 October 2012:
| Debit | Credit | |
| Property at cost | 200,000 | |
| Accumulated Depreciation | 40,000 |
On 1 November 2011, the company revalued the property to $280,000.
The company’s policy is to charge depreciation on a straight-line basis over 50 years. On revaluation there was no change to the overall useful economic life. It has also chosen not to make an annual transfer of the excess depreciation on revaluation between the revaluation reserve and retained earnings.
What should be the balance on the revaluation reserve and the depreciation charge as shown in the financial statements for the year ended 31 October 2012?
Suggested solutions:
| Property at cost | 200,000 |
| Less Accumulated depreciation | 40,000 |
| Carrying Value | 160,000 |
| Revaluation | 280,000 |
| Revaluation Reserve | 120,000 |
| Property at cost after revaluation | 280,000 |
| No of remaining years | 40 years |
| Annual Depreciation charge following the revaluation | 7,000 |