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    This document discusses the order of recognizing revaluation surplus and impairment losses for buildings and equipment. For a building, revaluation surplus is recognized first based on the replacement cost from an appraisal. Later, an impairment loss is recognized if the fair value falls below carrying amount. For equipment, an impairment loss is recognized first if the fair value falls due to obsolescence. Later, a reversal of impairment is recognized if the fair value increases again due to an appraisal.

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    4 Combination of Impairment _ Revaluation

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    This document discusses the order of recognizing revaluation surplus and impairment losses for buildings and equipment. For a building, revaluation surplus is recognized first based on the replacement cost from an appraisal. Later, an impairment loss is recognized if the fair value falls below carrying amount. For equipment, an impairment loss is recognized first if the fair value falls due to obsolescence. Later, a reversal of impairment is recognized if the fair value increases again due to an appraisal.

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    90 views1 page

    4 Combination of Impairment - Revaluation

    Uploaded by

    Neighvest
    This document discusses the order of recognizing revaluation surplus and impairment losses for buildings and equipment. For a building, revaluation surplus is recognized first based on the replacement cost from an appraisal. Later, an impairment loss is recognized if the fair value falls below carrying amount. For equipment, an impairment loss is recognized first if the fair value falls due to obsolescence. Later, a reversal of impairment is recognized if the fair value increases again due to an appraisal.

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    of 1

    Handout 04

    Combination of Impairment & Revaluation Surplus

    Revaluation Surplus First – Then Impairment


    Numbers 01 and 02
    Cornish Company finished construction of building on January 1, 2018 at a total cost of P25,000,000. The building was
    depreciated over the estimated useful life of 20 years using the straight-line method with no residual value.

    The building was subsequently revalued on December 31, 2021 and the revaluation report showed that the asset had a
    replacement cost of P32,000,000 and was determined to have no change in the useful life.

    On January 1, 2023, the building was tested for impairment and the fair value was P18,000,000 on same date, with no
    change on the remaining useful life.

    1) What amount of revaluation surplus should be recognized on December 31, 2021?


    A. 5,600,000
    B. 7,000,000
    C. 1,400,000
    D. 5,250,000
    2) What is the impairment loss for 2023?
    A. 6,000,000
    B. 400,000
    C. 750,000
    D. 0

    Impairment Loss First – Then


    Numbers 03 and 04
    Bernadette, Inc. purchased an equipment on January 1, 2019 for P13,000,000. This equipment had 10-year useful life.
    On December 31, 2020, due to obsolescence, Bernadette recognized an impairment loss of P2,600,000.

    On December 31, 2021, Bernadette determined that the fair value of the equipment had increased to P9,750,000.

    3) What amount of gain on reversal of impairment shall Bernadette recognize in 2021?


    A. 2,925,000
    B. 2,275,000
    C. 650,000
    D. 325,000
    4) Assuming Bernadette was using revaluation model in accounting for its property, plant and equipment, how much
    was the revaluation surplus resulting from the revaluation in 2021?
    A. 2,250,000
    B. 2,275,000
    C. 650,000
    D. 325,000

    / End /

    FAR by: John Bo S. Cayetano, CPA, MBA Page 1 of 1

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