Question 4ISTQ - Intermediate Accounting (Kieso) | StudyQuestionHub

StudyQuestionHub

Question 4ISTQ

Question

4. Franco Company uses IFRS and owns property, plant, and equipment with a historical cost of \(5,000,000. At December 31, 2016, the company reported a valuation reserve of \)690,000. At December 31, 2017, the property, plant, and equipment was appraised at \(5,325,000. The valuation reserve will show what balance at December 31, 2017?

(a) \)365,000.

(b) \(325,000.

(c) \)690,000.

(d) $0.

Step-by-Step Solution

Verified

Answer

The correct option is (b) $325,000.

1Definition of Valuation Reserve

The reserve made by the business entity for getting protection against fluctuations in value of the asset is known as valuation reserve.

2The Explanation for Correct Options

Valuation reserve on the balance sheet will be equal to:

Particular	Amount $
Appraised value of the asset	$5,325,000
Less: Historical cost	(5,000,000)
Valuation Reserve	$325,000

3The Explanation for Incorrect Options

All other options are incorrect because they do not reflect the difference between the appraised value and the historical cost of the asset.

Other exercises in this chapter

3. Companies that use IFRS: (a) may report all their assets on the statement of financial position at fair value. (b) are not allowed to net assets (a

IFRS5-4 Rainmaker Company prepares its financial statements in accordance with IFRS. In 2017, Rainmaker recorded the following revaluation adjustments related t

5. A company has purchased a tract of land and expects to build a production plant on the land in approximately five years. During the 5 years before constructi

Presented below is the balance sheet for Tomkins plc, a British company.Tomkins plc Consolidated Balance Sheet (amounts in £ million)ParticularAmount &pou