Question

Question Four
Furthermore Zambezi Ltd has adopted a policy of revaluing their plant every two years
according to net replacement value. On 31st December, 2013, Valuators determined that the
gross replacement value of Zambezi Ltd.’s plant is K1, 800,000, and the plant has a remaining
life of 8 years. At 31st December, 2013, the cost of plant reflected in the books of account a K1,
000,000, and accumulated depreciation at K200, 000. The original expected life of the plant was
10 years, with no residual value.
Required
Write a report to the managing director outlining recommendation on the accounting and
disclosure for the above matter as they relate to the year 2013 financial statements.
Your answer should refer to the relevant definitions and the necessary legal and accounting
requirements.

Answer 1

Zambezi Ltd
Revalue in every 2 Year on NRV
on 31.12.2013 Value of Plant K18,00,000					Life of Plant	8
Book Value of Plant is K10,00,000 (At cost)
Accumulated Depreciations K200,000
Orignail Expected Life 10 Year With Zeero NRV
I.e
Depreciation Value = (Original Value- Net Residual Value/ Orginal Expected life)
=10,00,000/10 : 100,000 Depreciation each year
Depreciation Chart would help management to understand the Plant value more accurately
Years	Year End	Opening Value	Depreciation	Closing value	Revalue	Revalued at	Over Valued
Year 1	31.12.2012	10,00,000.00	1,00,000.00	9,00,000.00
Year 2	31.12.2013	9,00,000.00	1,00,000.00	8,00,000.00	8,00,000.00	18,00,000.00	10,00,000.00
Year 3	31.12.2014	8,00,000.00	1,00,000.00	7,00,000.00
Year 4	31.12.2015	7,00,000.00	1,00,000.00	6,00,000.00	6,00,000.00
Year 5	31.12.2016	6,00,000.00	1,00,000.00	5,00,000.00
Year 6	31.12.2017	5,00,000.00	1,00,000.00	4,00,000.00	4,00,000.00
Year 7	31.12.2018	4,00,000.00	1,00,000.00	3,00,000.00
Year 8	31.12.2019	3,00,000.00	1,00,000.00	2,00,000.00	2,00,000.00
Year 9	31.12.2020	2,00,000.00	1,00,000.00	1,00,000.00
Year 10	31.12.2021	1,00,000.00	1,00,000.00	-	-
		Total	10,00,000.00
If Management to over value the plant value to K18,00,000 then K10,00,000 Profit should be there in books of accounts
As the company is being following the plant revaluation policy in every 2 year, then there will be profit of K10,00,000.
The Profit is in the nature of capital nature and need to report in the financial statement for the year end 2013.
Accordinlgy the value of Plant will revised with market value.
Thanks.