Question

The following information relates to three companies that use the revaluation model in relation to intangible assets and prepare annual financial statements to 31 December:

a) Company W acquired an intangible asset for £500,000 on 31 December 2018. This asset was revalued at £450,000 on 31 December 2019 and at £540,000 on 31 December 2020.

b) Company X disposed of an intangible asset on 31 December 2020. This asset had been acquired some years previously at a cost of £200,000 and had a carrying amount of £320,000 on the date of disposal. Disposal proceeds were £390,000.

c) Company Y acquired an intangible asset for £160,000 on 31 December 2018. This asset was revalued at £180,000 on 31 December 2019 and at £130,000 on 31 December 2020.

Required

1） Explain how each of the above matters should be dealt with in the financial statements of the company concerned.

Answer 1

a) Acquisition Cost as on 31 December 2018 = 500,000.

Revalued value as on 31 December 2019 = 450,000, therefore 50,000 shall be recognized on Statement of Profit and Loss, since there is no amount in another comprehensive income to the extent of any credit balance existing in revaluation surplus related to such asset.

Revalued Value as on 31 December 2020 = 540,000. The increase to the extent of 50,000 shall be identified in Statement of Profit or Loss (as in previous year 50,000 was the reduction amount), balance 40,000 shall be recognized in another comprehensive income and accumulated in the equity under the heading Revaluation Surplus.

b) Disposal Proceeds of Intangible assets are = 390,000

Less: Carrying amount on the date of disposal = 320,000

Gain on disposal (recognized in Statement of P&L)= 70,000

c) Acquisition Cost as on 31 December 2018 = 160,000.

Revalued value as on 31 December 2019 = 180,000, therefore 20,000 shall be recognized in another comprehensive income under the heading revaluation surplus.

Revalued Value as on 31 December 2020 = 130,000. The decrease to the extent of 20,000 shall be identified in another comprehensive income (as in previous year credit of 20,000 remaining in revaluation surplus account), balance 30,000 shall be recognized in Profit or Loss.