Question

garrett corporation paid $200,000 to acquire land, buildings, and equipment. at the time of acquisition, garrett paid $20,000 for an appraisal, which revealed the following values: land, $100,000; buildings, $125,000; and equipment, $25,000. required: 1. what cost should the company assign to the land, buildings, and equipment, respectively? 2. assume that garrett uses ifrs and chooses to use the revaluation model to value its property, plant, and equipment. at the end of the year, the book value of the land, buildings, and equipment are $88,000, $104,000, and $18,000, respectively. the company determines that the fair value of the land, buildings, and equipment at the end of year is $110,000, $106,000, and $15,000, respectively. prepare the journal entries that garrett should make to value its property, plant, and equipment.

Answer 1

The cost assigned to land, buildings, and equipment would be $80,000, $100,000, and $20,000, respectively, based on the appraisal values. For IFRS revaluation, journal entries would adjust the book values to reflect the new fair values, with land and buildings increasing in value and equipment decreasing.

Step-by-step explanation:

To assign cost to the land, buildings, and equipment, we will use the appraised values to determine the proportion of total cost that each item should carry. The formula used is (Individual Appraised Value / Total Appraised Value) * Total Purchase Price. Applying this to the given figures:

• Land = ($100,000 / $250,000) * $200,000 = $80,000
• Buildings = ($125,000 / $250,000) * $200,000 = $100,000
• Equipment = ($25,000 / $250,000) * $200,000 = $20,000

For the revaluation under IFRS, we make the following journal entries at year-end to reflect the changes in fair value:

• For land, since its value increased from its book value:

Dr. Land 22,000Cr. Revaluation surplus (Equity) 22,000

• (To record the increase in the fair value of land)
• For buildings, since its value also increased:

Dr. Buildings 2,000Cr. Revaluation surplus (Equity) 2,000

• (To record the increase in the fair value of buildings)
• For equipment, as its value decreased:

Dr. Revaluation surplus (Equity) 3,000Cr. Equipment 3,000

• (To record the decrease in the fair value of equipment; any surplus should first be removed before recognizing a loss)