2. (a) AA Co., LTD prepares financial statements to 31 May each year. On 31 May 20X0, the company acquired land for $$ £ 80,000 $$. This land was revalued at $$ £ 950,000 $$ on 31 May 20 X 1 and at $$ £ 85,000 $$ on 31 May 20X2. (b) BB Co., LTD. prepares financial statements to 30 June each year. On 30 June 20X1, the company acquired land for $$ £ 100,000 $$. This land was revalued at $$ £ 940,000 $$ on 30 June $$ 20 imes 2 $$ and at $$ £ 120,000 $$ on 30 June 20X2. The company decided to dispose of the land for £110,000 on 31 July 20X3. Required: Assuming that both companies use the revaluation model, explain how each revaluation should be dealt with in the financial statements. Ignore depreciation. (10 marks)

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2. (a) AA Co., LTD prepares financial statements to 31 May each year. On 31 May 20X0, the company acquired land for $$ £ 80,000 $$. This land was revalued at $$ £ 950,000 $$ on 31 May 20 X 1 and at $$ £ 85,000 $$ on 31 May 20X2. (b) BB Co., LTD. prepares financial statements to 30 June each year. On 30 June 20X1, the company acquired land for $$ £ 100,000 $$. This land was revalued at $$ £ 940,000 $$ on 30 June $$ 20 	imes 2 $$ and at $$ £ 120,000 $$ on 30 June 20X2. The company decided to dispose of the land for £110,000 on 31 July 20X3. Required: Assuming that both companies use the revaluation model, explain how each revaluation should be dealt with in the financial statements. Ignore depreciation. (10 marks)

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To address the revaluation of land for both AA Co., LTD and BB Co., LTD, we will follow the revaluation model as per the International Financial Reporting Standards (IFRS). Here’s how each revaluation should be dealt with in the financial statements:

### AA Co., LTD

1. **Initial Acquisition (31 May 20X0)**:
   - The land is acquired at a cost of $$ £ 80,000 $$. This amount will be recorded as the carrying amount of the land in the financial statements.

2. **First Revaluation (31 May 20X1)**:
   - The land is revalued to $$ £ 950,000 $$. 
   - The increase in value is calculated as:
     $$
     \text{Increase} = £ 950,000 - £ 80,000 = £ 870,000
     $$
   - This increase will be recognized in other comprehensive income (OCI) and credited to a revaluation surplus in equity. The journal entry would be:
     - Debit Land $$ £ 870,000 $$
     - Credit Revaluation Surplus $$ £ 870,000 $$

3. **Second Revaluation (31 May 20X2)**:
   - The land is revalued to $$ £ 85,000 $$.
   - The decrease in value is calculated as:
     $$
     \text{Decrease} = £ 950,000 - £ 85,000 = £ 865,000
     $$
   - This decrease will first offset any existing revaluation surplus related to the land. If the surplus is insufficient, the remaining amount will be recognized in profit or loss. The journal entry would be:
     - Debit Revaluation Surplus (to the extent of surplus) 
     - Debit Profit or Loss (for any excess)
     - Credit Land $$ £ 865,000 $$

### BB Co., LTD

1. **Initial Acquisition (30 June 20X1)**:
   - The land is acquired at a cost of $$ £ 100,000 $$. This amount will be recorded as the carrying amount of the land in the financial statements.

2. **First Revaluation (30 June 20X2)**:
   - The land is revalued to $$ £ 940,000 $$.
   - The increase in value is calculated as:
     $$
     \text{Increase} = £ 940,000 - £ 100,000 = £ 840,000
     $$
   - This increase will be recognized in OCI and credited to a revaluation surplus in equity. The journal entry would be:
     - Debit Land $$ £ 840,000 $$
     - Credit Revaluation Surplus $$ £ 840,000 $$

3. **Second Revaluation (30 June 20X2)**:
   - The land is revalued to $$ £ 120,000 $$.
   - The decrease in value is calculated as:
     $$
     \text{Decrease} = £ 940,000 - £ 120,000 = £ 820,000
     $$
   - Similar to AA Co., LTD, this decrease will first offset any existing revaluation surplus related to the land. If the surplus is insufficient, the remaining amount will be recognized in profit or loss. The journal entry would be:
     - Debit Revaluation Surplus (to the extent of surplus)
     - Debit Profit or Loss (for any excess)
     - Credit Land $$ £ 820,000 $$

4. **Disposal of Land (31 July 20X3)**:
   - The land is disposed of for $$ £ 110,000 $$. The carrying amount of the land at the time of disposal will need to be determined based on the last revaluation. If the carrying amount is less than the sale price, the gain will be recognized in profit or loss. The journal entry would be:
     - Debit Cash $$ £ 110,000 $$
     - Credit Land (carrying amount)
     - Credit Gain on Disposal (if applicable)

### Summary
- Both companies will recognize increases in land value as revaluation surpluses in equity and decreases as losses in profit or loss, depending on the existence of prior surpluses. The disposal of land will result in recognizing any gain or loss based on the carrying amount at the time of sale.
AA Co., LTD: - Acquired land for $$ £ 80,000 $$. - Revalued to $$ £ 950,000 $$ in 20X1: Recognize $$ £ 870,000 $$ increase in revaluation surplus. - Revalued to $$ £ 85,000 $$ in 20X2: Offset $$ £ 870,000 $$ surplus, then recognize $$ £ 865,000 $$ decrease in profit or loss. BB Co., LTD: - Acquired land for $$ £ 100,000 $$. - Revalued to $$ £ 940,000 $$ in 20X2: Recognize $$ £ 840,000 $$ increase in revaluation surplus. - Revalued to $$ £ 120,000 $$ in 20X2: Offset $$ £ 840,000 $$ surplus, then recognize $$ £ 820,000 $$ decrease in profit or loss. - Sold land for $$ £ 110,000 $$: Recognize gain or loss based on carrying amount at disposal. Both companies record increases in revaluation surplus and decreases in profit or loss, and handle land disposal accordingly.

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