Essex Plc. is revaluing equipment with a carrying value of £ 715,000 to its fair value of £ 673,000. The original cost of the equipment was £ 1,000,000. The equipment has a 10- year useful life and scrap value of £ 50,000. Essex uses straight- line depreciation. Assume Essex eliminates all prior accumulated depreciation and adjusts the historical cost to fair value.
a. What is the revaluation surplus or unrealized loss?
b. Where does the firm report the revaluation surplus or unrealized loss in the financial statements?
c. What are the journal entries to record the revaluation?
d. What is the depreciation expense on the equipment after the revaluation?
e. Essex chooses to take any revaluation surplus to retained earnings over the equipment’s remaining useful life. What is the amount of the surplus, if any, taken to retained earnings in the year after revaluation?
f. If Essex sells the equipment at the end of the third year after revaluation for £ 415,000, what is the journal entry?
g. Now assume Essex holds the equipment. At the beginning of the fourth year after revaluation, Essex revalues its equipment again when the fair value is £ 425,000. What are the journal entries to record the revaluation? Where does the firm report the revaluation surplus or unrealized loss in the financial statements? Ignore part f.