Question 2 (30 marks) Discuss the factors that a business should consider when deciding on a revaluation policy for Property, plant and equipment (10 marks) Avant Plc operates in the tourist industry The company own three hotels The hotels are presented at revalued amounts in the financial statements in accordance with IAS16 Property Plant and Equipment Avant prepares its financial statements for the year ended 31 st March each year The hotels are valued every two years The most recent valuation took place on 31st March 2021 but the results have not yet been incorporated into the 2021 financial statements The directors would like to ignore the most recent valuations as they reveal a significant downturn in market values arising from the effects of the Corona Virus They have recommended that a further revaluation exercise is conducted in 2022 instead, when the market has resettled itself to normal operating conditions Details of the hotels and their valuations are as follows Hotel Name Gross value at 31 st March 2021 Before latest valuation (000) Accumulated Depreciation at 31 st March 2021 before latest valuation (000) New Valuation 31st March 2021 (000) Hop Hill 15,000 4,000 6,500 Caba 18,000 10,500 5,100 Bubbli 5,000 1,000 4,800 Totals 38,000 15,500 12,500 The revaluation history indicates that Hop Hill and Caba have outstanding revaluation balances of 1 98m and 2 5m respectively while a charge of 900,000 was made to the 2016 accounts in relation to a fall in value of Bubbli The hotels were valued by Eric Auctioneers The fee 3,600 has already been posted to the accounts as a debit to administration expenses and a credit to receivables The amount remained unpaid at the reporting date Requirement Advise the directors on the appropriateness of their proposed accounting treatment in respect of the latest revaluation results (6 marks) Assuming that the revaluation of 31st March 2021 is to be included in the 2021 financial statements, complete the relevant accounting transactions (Journals are recommended but not mandatory) and show the movement on the revaluation reserve account for the period (14 marks)

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Question 2 (30 marks) Discuss the factors that a business should consider when deciding on a revaluation policy for Property, plant and equipment. (10 marks)

Question 2 (30 marks)

Discuss the factors that a business should consider when deciding on a revaluation policy for Property, plant and equipment. (10 marks)

Avant Plc operates in the tourist industry. The company own three hotels. The hotels are presented at revalued amounts in the financial statements in accordance with IAS16 Property Plant and Equipment. Avant prepares its financial statements for the year ended 31^st March each year.

The hotels are valued every two years. The most recent valuation took place on 31st March 2021 but the results have not yet been incorporated into the 2021 financial statements. The directors would like to ignore the most recent valuations as they reveal a significant downturn in market values arising from the effects of the Corona Virus. They have recommended that a further revaluation exercise is conducted in 2022 instead, when the market has resettled itself to normal operating conditions.

Details of the hotels and their valuations are as follows:

Hotel Name	Gross value at 31^st March 2021 Before latest valuation (000)	Accumulated Depreciation at 31^st March 2021 before latest valuation (000)	New Valuation 31st March 2021 (000)
Hop-Hill	15,000	4,000	6,500
Caba	18,000	10,500	5,100
Bubbli	5,000	1,000	4,800
Totals	38,000	15,500	12,500

The revaluation history indicates that Hop-Hill and Caba have outstanding revaluation balances of 1.98m and 2.5m respectively while a charge of 900,000 was made to the 2016 accounts in relation to a fall in value of Bubbli.

The hotels were valued by Eric Auctioneers The fee 3,600 has already been posted to the accounts as a debit to administration expenses and a credit to receivables. The amount remained unpaid at the reporting date

Requirement

Advise the directors on the appropriateness of their proposed accounting treatment in respect of the latest revaluation results. (6 marks)

Assuming that the revaluation of 31st March 2021 is to be included in the 2021 financial statements, complete the relevant accounting transactions (Journals are recommended but not mandatory) and show the movement on the revaluation reserve account for the period.

(14 marks)