Answer to Question #188816 in Accounting for Eric

Question

MTNGhanaLtd.acquiredabrandnewproperty(landandbuildings)on1stJanuary,2016

forGH¢40million(includingGH¢15millioninrespectoftheland).Theassetwas

revaluedonthe31stofDecember,2017toGH¢43million(includingGH¢16.6millionin

respectoftheland).Thebuildingselementwasdepreciatedovera50-yearusefullifetoa

zeroresidualvalue.Theusefullifeandresidualvaluedidnotsubsequentlyneedrevision.

Onthe31stofDecember,2018thepropertywasrevalueddownwardstoGH¢35millionas

aresultoftherecession(includingGH¢14millioninrespectoftheland).Thecompany

makesatransferfromrevaluationsurplustoretainedearningsinrespectofrealisedprofit.

Required:

i.Determinetheamountsthatshouldberecognisedinprofitorlossandother

comprehensiveincomefortheyearsended31December2017and31December

2018.

ii.Explainthereasonsforyourtreatmentofthetworevaluationsthatoccurredin

2017and2018inthefinancialstatements

Answer 1

In this case it is necessary to use the IFRS Revaluation standard.

If the revaluation initially increases the carrying amount of the asset class, this increase is not recognized in the income statement and is recognized directly in equity under the item " revaluation surplus». This means that +3 million is reflected directly in equity under the item " value gain from revaluation» (43-40=3).

Any subsequent decrease in the value of the asset first reduces the balance of the item "revaluation surplus" in the statement of other comprehensive income, and then is recognized as a loss in the income statement. This means that we record a decrease in the amount of RUB 8 million (43-35=8) under the item "revaluation surplus" in the statement of other comprehensive income, and then we record the loss in the income statement.