[Anonymous]

Hello Guys, I need help understanding this. The answer key states #3 is correct. I am not understanding why it would be 3. I am thinking #1 is the correct answer because you would reverse a previously recognized loss of $20,000 with the gain in year 2. Thanks for your help!

Veronica Corp. uses the revaluation model for intangible assets. On March 1, year 1, Veronica acquired intangible assets with an indefinite life for $200,000. On December 31, year 1, it was determined that the recoverable amount for these intangible assets was $180,000. On December 31, year 2, it was determined that the intangible assets had a recoverable amount of $187,000. How should Veronica recognize the gain or loss in the December 31, year 2 financial statements?

1.Gain on the income statement of $7,000.

2.Loss on the income statement of $20,000.

3.Unrealized gain in other comprehensive income of $7,000.

4.Unrealized loss in other comprehensive income of $20,000.

[FUBARFAR]

I might be wrong, but I think the revaluation loss should be expensed immediately on the income statement with the gain being recognized in OCI. If there was a 20,000 revaluation gain in year 1 and a 7,000 revaluation loss in year 2, you would offset the year 2 loss against the year 1 gain in OCI, leaving a balance of 13,000 unrecognized gain in OCI. In other words, if there was a previously recognized revaluation gain that was put into OCI then yes, you would offset the loss with the gain.

FAR - 7/19/2016 - 83
BEC - 8/30/2016
AUD - TBD
REG - TBD

[Anonymous]

Got it- So since the loss occurred in year 1, the Loss is expensed on the I/S. In year 2, there is a gain of $7k and it should be reported on OCI…I guess I have a mind block after non stop MCQs… Thank you!

[FUBARFAR]

Lol i completely understand. I just got done with F4 and there were a crap ton of questions.

FAR - 7/19/2016 - 83
BEC - 8/30/2016
AUD - TBD
REG - TBD

[Anonymous]

Pretty sure if IFRS, answer 1 would be correct.

A little confusing, because I have always associated the “revaluation model” with IFRS, so that is where my brain went when I read the question. But you are right, it doesn't say IFRS, so I'm sure it's GAAP.

I wonder if “revaluation model” is actually used in GAAP terminology, or if that is just a poor choice of wording when they wrote the question.

[Anonymous]

bet10, I believe you are right as well. In IFRS revaluation, If there was a gain which closed to Accumulated OCI, then the revaluation loss would reverse the previously recognized revaluation gain in AOCI. Since that is not the case here, it would go straight to I/S. I think whether GAAP or IFRS they are similar?

[Anonymous]

I didnt know revaluation gains was allowed with GAAP. I also chose 1.

[Anonymous]

I just got a question like this on the wiley book. Didnt use numbers. Tested the concept.

Reason behind the answer: carrying amount cannot be increased beyond carrying amount prior to impairment. Same amount recognized as a loss in previous year will be recognized as a gain in the current year

[nib]

hello

I have tried J/E for above mcq,

1)On, 31 Dec YR-1

Dr OCI ( Unrealized Loss) 20,000
Cr intangible asset 20,000

2)On December 31, year 2,

Dr intangible asset 7,000
Cr OCI ( Unrealized Gain) 7,000

Pls correct me ,If I am wrong .

[Anonymous]

^Wrong. With GAAP the gain and loss goes straight to income statement.

With IFRS gains go to OCI and are removed from OCI to extent of gains. Losses go to the income statement and are removed from the income statement to the extent of loss.

[nib]

hello all,

thnks.

please suggest correct journal entries .

[Author]

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