For each of the following situations, state whether you agree or disagree with the financial reporting practice employed, and briefly explain the reason for your answer.

1.

The controller of the Dumars Corporation increased the carrying value of land from its original cost of $2 million to its recently appraised value of $3.5 million.

Yes I agree with the controller of Dumars corporation because this is what IAS 16 says. IAS 16 Property, Plant & Equipment says that the asset must reflect its Fair value in the face of financial statements. The fair value measurement must be undertaken at the end of the year. This fair value measurement guidance (Revaluation of Non-current Assets) is in line with the prudence concept which says that liabilities and expenses must not be understated and Assets and Income must not be overstated. If we don't revalue our asset then there is increased chances of undervaluing depreciation expense due to undervalued assets.

Accounting treatment must be:

1. Waive off all the accumulated depreciation related to the revalued asset.

Dr Accumulated Depreciation XX

Cr Revaluation Reserves XX

2. Increase the cost of the asset to the revalued amount:

Dr Land (3.5-2) m $1.5m

Cr Revaluation Reserves $1.5

In the nutshell, we can say that the carrying value of the asset has been increased to the amount revalued.