A company which uses the revaluation model for its PPE bought a building on 1 January 2014 for £10m. The building has an estimated useful life of 50 years and nil residual value. On 31 December 2018, the building was revalued at £8.1m and on 31 December 2020 it was revalued for a second time at £7.8m. The company uses the straight-line method of depreciation for all PPE items. There was no change to the remaining useful life after each revaluation. What is the net effect of both revaluations on the statement of comprehensive income? Select one: a. A revaluation loss in the income statement of £2.2m b. A revaluation loss in the income statement of £1m c. A revaluation loss in the income statement of £1.2m d. A revaluation loss in the income statement of 0.84m e. A revaluation loss in the income statement of £4.2m f. A revaluation loss in the income statement of £1.4m
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
A company which uses the revaluation model for its PPE bought a building on 1 January 2014 for £10m. The building has an estimated useful life of 50 years and nil residual value. On 31 December 2018, the building was revalued at £8.1m and on 31 December 2020 it was revalued for a second time at £7.8m. The company uses the straight-line method of
What is the net effect of both revaluations on the statement of comprehensive income?
A revaluation loss in the income statement of £4.2m
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