How does land appear in a company's books based on the information below?

Question

A company bought land in 1982 for $1,200,000, but it was appraised at $1,795,000 in 2004 what would the land appear as on the company's books in 2004? $1,200,000, $1,795,000 or $2,995,000

Answer 1

The land purchased at a cost of $1.2m was appraised at $1.795m in 2004, but you didn't say if a revaluation was carried out. If not, the land stays in the books at original cost of $1.2m. If it was revalued to the appraised value, it would appear in the books as $1.795m in 2004, with the "gain" taken to Revaluation Surplus (part of equity). The "gain" is not to be passed through the income statement. [IAS 16.39]

Answer 2

IAS 16 permits two accounting models:

Cost Model. The asset is carried at cost less accumulated depreciation and impairment. [IAS 16.30]

Revaluation Model. The asset is carried at a revalued amount, being its fair value at the date of revaluation less subsequent depreciation, provided that fair value can be measured reliably. [IAS 16.31]

Normally land is not depreciated because its useful life is unlimited.

In the given case if the company adopts cost model in 2004, then it would be shown at $1,200,000 in company's balance sheet.
But if the company adopts revaluation model i.e. to show the land at revalued amount then it would be shown at $1,795,000.
In the later case a revaluation increase(revaluation surplus) of $595,000 should also be recorded on the equity side of the balance sheet. This revaluation increase is transferred to the retained earnings when the asset is disposed off.

Answer 3

Book value would remain at the original price $1,200,000