Reval Inc. prepares financial statements in accordance with IFRS and has elected to use the revaluation model to account for its buildings. Reval Inc. acquired a building on January 1, 20X3 for $300,000. At that time it estimated the useful life of the building to be 60 years, with no residual value. It is now January 1, 20X3. The carrying amount of the building is $275,000 ($300,000 − (5 × $5,000)). Reval Inc. has obtained an appraisal valuing the building at $385,000.
Part I:
1. Show the accounting entries to recognize the revaluation and corresponding depreciation in 20X3.
2. Show the balances on the building and revaluation surplus accounts at December 31, 20X3.
Part II:
On January 1, 20X4, a major fire damages a significant part of the building. Reval Inc. has no insurance and the value of the damaged building is impaired, such that the remainder of the building has a value of only $250,000. Show the entries to reflect the impairment on January 1, 20X4.