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Question 4ISTQ

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Intermediate Accounting (Kieso)
Found in: Page 262

Short Answer

4. Franco Company uses IFRS and owns property, plant, and equipment with a historical cost of $5,000,000. At December 31, 2016, the company reported a valuation reserve of $690,000. At December 31, 2017, the property, plant, and equipment was appraised at $5,325,000. The valuation reserve will show what balance at December 31, 2017?

(a) $365,000.

(b) $325,000.

(c) $690,000.

(d) $0.

The correct option is (b) $325,000.

See the step by step solution

Step by Step Solution

Definition of Valuation Reserve

The reserve made by the business entity for getting protection against fluctuations in value of the asset is known as valuation reserve.

The Explanation for Correct Options

Valuation reserve on the balance sheet will be equal to:

Particular

Amount $

Appraised value of the asset

$5,325,000

Less: Historical cost

(5,000,000)

Valuation Reserve

$325,000

The Explanation for Incorrect Options

All other options are incorrect because they do not reflect the difference between the appraised value and the historical cost of the asset.

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