[tphil]

Hi everyone, I’m currently making my way through the fixed asset questions in F4. I was marked wrong on this question:

Screenshot here: https://i.imgur.com/HK6NjsQ.jpg

My reasoning for the selected answer was this, at the end of year 1 the entity revalued its building to a fair value of $2.7 mil and recorded a 200,000 gain, so I assumed the initial carrying value was 2.5 million (which isn’t really even necessary to know for this question I guess). The question then jumps forward all the way to the end of year 4 and says that the buildings have a carrying value of 2,295,000 and a 2,000,000 fair value, and wants to know how much of a revaluation loss would be reported in net income. I assumed that since the question jumped forward so many years and the carrying value had already moved from 2.7 mil to 2.295 mil that the 200,000 revaluation surplus in AOCI had already been eliminated in a prior year and all current losses would be charged to net income. Becker’s answer however says that I should first eliminate the amount in AOCI and the rest goes to net income. Why would I assume that the 200,000 is still in AOCI given the decrease in carrying value and the time elapsed?

Additionally, if the 200,000 really still were in AOCI and the fair value decreased to 2 mil, I would expect to take the 200,000 out of AOCI and then book a 500,000 revaluation loss to net income to account for the full change in fair value. It would seem like the full loss isn’t being accounted for under Becker’s answer. I guess I’m just not seeing how the carrying value can move from 2.7 mil to 2.295 mil and yet there’s still a revaluation surplus to deal with. Is this an error on Becker’s part?

Thanks for your help!

 

 

[NYCaccountant]

The asset was originally recorded at cost and then revalued at it's fair value which resulted in the 200k increase in OCI. That was in year one. The question asks you what the loss would be now that the recoverable amount (fair value) is 295k less at the end of year 4 than the assets carrying value. The difference between the original value of 2,700,000 and the assets current carrying value at the end of year of 2,295,000 is depreciation expense and not necessarily “losses” in fair value.

FAR - 93
REG - 87
BEC - 84!!!!
AUD - 99!!!!!! CPA exam complete.

[thehip41]

at 12-31-01 the FV is 2,700,000

Building DR 2,700,000

OCI CR 200,000

at 12-31-04 after DEP, the CV is 2,295,000. But the Fair Value is 2,000,000

If there was a 0 balance in OCI, then there would be a 295,000 loss in the current year. But, there is still that 200,000 credit balance in OCI

So you do this

OCI has a CR balance at 12-31-04 of 200,000

You take 200,000 of the 295,000 loss and DR OCI

OCI is now a 0 balance.

Now you DR Impairment loss for the difference. 95,000

FAR - 83
AUD - 73 92
BEC - 83
REG - 88

Licensed CPA in the state of Michigan

[peetree]

I'm so glad I'm done with FAR.

Just reading these makes me want to rage.

FAR 02/21/13 - 95
REG 07/02/13 - 87
AUD 08/02/13 - 94
BEC 08/30/13 - 85
Ethics Exam - 90

Illinois candidate awaiting his license

Used Becker Self Study | Ninja Audio | Becker Flash Cards | Ninja Notes | Wiley Test Bank

[Topsya]

@tphil Thank you for posting this question!!!!

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[Author]

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