Acct1511 2014s2c3 Topic 3

Suggested solutions to homework questions Topic 3

Tutorial Group Work Allocation: Group 1: Question 2 from mid-session exam 2011, semester 2, part (a) Group 2: Question 2 from mid-session exam 2011, semester 2, part (b) and (c) Group 3: Additional Homework Question, Cost Method Group 4: Additional Homework Question, Revaluation Method Group 5: Final exam 2013, semester 2: Question 7 (Adapted), part (a), (b) and (c) Group 6: Final exam 2013, semester 2: Question 7 (Adapted), part (d) and (e) Group 7: Final exam 2013, semester 1: Question 1 (Adapted), part (a) and (b) Group 8: Final exam 2013, semester 1: Question 1 (Adapted), part (c)

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Mid-semester Exam 2011, Semester 2, Question 2 QUESTION 2 a (5 marks) Second year: Dr Loss on Revaluation $1,000,000 Cr Land $1,000,000

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Third year: Dr Land $3,000,000 Cr Gain on Revaluation $1,000,000 1 Mark Cr Revaluation Reserve $2,000,000 1 Mark *Note: if, for the third year: Dr Land $3,000,000 Cr Revaluation Reserve $3,000,000 – 1 mark only Fourth year: Dr Cash $6,000,000 Dr Loss on Sale of Land $1,000,000 Cr Land $7,000,000 Dr Revaluation Reserve $2,000,000 Cr Retained Earnings $2,000,000

1 Mark 1 Mark

QUESTION 2 b (1 mark) It reflects conservatism because valuation increment of land above initial cost is not recognized in profit and loss but only as an increase in equity because it is an estimated amount and not a transacted value(or similar words to that effect) 1 Mark. QUESTION 2 c (2 marks) Relevance: The revaluation method provides a relevant value for land as it is an estimate of the current market value (or similar words to that effect). 1 Mark Reliability: The revaluation method does not provide a reliable figure as it is an estimate of what may be obtained between willing and knowledgeable buyers and sellers at an arm’s length. 1 Mark Alternative answer: The revaluation method provides a reliable value as it is obtained from an independent valuer’s report. * Alternative answer should be...