Question

Samson Company applies revaluation accounting to plant assets with a carrying value of P800,000, a useful life of 4 years, and no salvage value. Depreciation is calculated on the straight-line basis. At the end of year 1, independent appraisers determine that the asset has a fair value of P750,000. The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a;

Select one:

a. credit to Plant Assets for P150,000.

b. credit to Depreciation Expense for P150,000.

c. debit to Accumulated Depreciation for P50,000.

d. credit to Revaluation Surplus for P150,000.

Answer 1

Carrying value of plant asset = P800,000

Useful life = 4 years

Annual depreciation expense = Carrying value of plant asset/Useful life

= 800,000/4

= P200,000

Carrying value of plant asset, at the end of year 1 = Carrying value of plant asset - Depreciation expense for year 1

= 800,000 - 200,000

= P600,000

Fair value of plant asset at the end of year 1 = P750,000

Revaluation surplus =  Fair value of plant asset at the end of year 1 - Carrying value of plant asset, at the end of year 1

= 750,000 - 600,000

= P150,000

The journal entry to adjust the plant assets to fair value and record revaluation surplus in year one will include a;

credit to Revaluation Surplus for P150,000.

Correct option is (D)