Malapo Ltd operates profitably in the property letting industry. The company owns six blocks of flats, situated on Beach Road, Sea Point.

On 30 June 20x3, these items appeared in the annual financial statements:

• Accounting policies

Tangible assets.

– No depreciation is provided on land.

– Buildings are depreciated over 10 years using the straight-line method.

• Tangible assets

– A register of the company’s land is available for inspection at the company’s registered office.

As a result of the severe rate of inflation experienced over the last 10 years, and to reflect a more realistic return on its investment, the directors decided to reflect the value of the company’s tangible assets at the current fair value.

A valuation was undertaken by Mr X, a member of the Property Investors Association, who valued the land and buildings at R8 250 000, being the current fair value at 30 June 20x4. (Ignore taxation.)

You are required to:

1. Give the journal entry to record to the above decision.

2. Show how the tangible assets and the reserve should be reflected in the statement of financial position as at 30 June 20x4.

3. Briefly discuss whether the revaluation surplus can/should be distributed by way of a dividend.

Transcribed Image Text:

Land - at cost Buildings at cost - accumulated depreciation R3 500 000 R1 000 000 R100 000