Question 4IFRS - Intermediate Accounting (Kieso)

Question

IFRS5-4 Rainmaker Company prepares its financial statements in accordance with IFRS. In 2017, Rainmaker recorded the following revaluation adjustments related to its buildings and land: The company’s building increased in value by \(200,000; its land declined by \)35,000. How will these revaluation adjustments affect Rainmaker’s statement of financial position? Will the reporting differ under GAAP? Explain.

Step-by-Step Solution

Answer

The business entity will report a net revaluation gain of $165,000.

Definition of Revaluation

Revaluation can be defined as the process under which the business entity revalues its assets according to the market and recognize revaluation gain or loss depending upon the increase or decrease in value.

 

Effect of Revaluation on Statement of Financial Position

Net revaluation gain of $165,000 $(\$200,000-\$35,000)$ will be reported. Reduction and increase in asset will be adjusted with the respective asset, and net revaluation gain will be added to the equity. Revaluation is done for each period. Reporting of revaluation gains and losses is prohibited under GAAP.