CPE SCHOOL OF ACCOUNTANCY Test

Topic IAS-16 Revaluation Journal Entries

Paper CAF-1 Financial Accounting and Reporting – I
Total Mark 30 Time 55 M

Q.1
Shah Jahan Limited (SJL) runs a cruise business across oceans. Following information in
respect of one of SJL’s cruise ship is available:
i. SJL bought a cruise ship on 1 March 2018. After completing all the required formalities,
the ship was ready to sail on 1 April 2018.
ii. Details regarding components of the ship are as under:

iii. The average monthly sailing of the ship during the last three years are as under:

iv. SJL uses revaluation model for subsequent measurement. SJL accounts for revaluation
on net replacement value method and transfers the maximum possible amount from
the revaluation surplus to retained earnings on an annual basis.
v. The revalued amounts of the ship as at 31 December 2019 and 2020 were determined
as Rs. 1,400 million and Rs. 1,000 million respectively. Revalued amounts are
apportioned between the components on the basis of their book values before the
revaluation.
Required:
Prepare necessary journal entries to record the above transaction from the date of acquisition
of the ship to the year ended 31 December 2020. (15)

Q.2 Choose the most appropriate option :

(i). An asset was purchased on 1 January 2017 for Rs. 100 million with useful life of 6 years
and residual value of Rs. 10 million. On 1 January 2020, it is revalued to Rs. 120 million
with remaining useful life of 3 years and expected residual value of Rs. 15 million.
Howmuch excess depreciation will be charged for the year ended 31 December 2020?

(a) Rs. 15 million (b) Rs. 35 million

(c) Rs. 20 million (d) Rs. 25 million (2)

By: HM Umar Farooq Rana 1

 CPE SCHOOL OF ACCOUNTANCY Test

(ii). The correct accounting treatment of initial operating losses incurred during the
commercial production due to under-utilization of the plant would be to:
(a) capitalise as a directly attributable cost
(b) defer and charge to profit or loss account when profit is earned from the plant
(c) charge directly to retained earnings since these are not considered to be normal
operating losses
(d) charge to profit or loss account (1)

Q.3
Meerab Enterprises was incorporated on 1 July 2012.ME depreciates its property, plant and
equipment on straight line basis over their useful life. It uses revaluation model for subsequent
measurement of the property, plant and equipment and has a policy of revaluing these after
every two years.
Following information pertains to its property, plant and equipment:

During the year there were no addition or deletion in the above assets. As per policy, ME transfers
the maximum possible amount from the revaluation surplus to retained earnings on an annual
basis.

Required:
Prepare necessary journal entries for the year ended 30 June 2014 and 2015. (12)

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By: HM Umar Farooq Rana 2