Swire Pacific, Ltd., based in Hong Kong, is one of the largest companies in the world. The primary operations of the company are in the regions of Hong Kong, China, and Taiwan where it has operated for over 130 years. Swire operates Cathay Pacific Airways and has extensive real estate holdings in Hong Kong. Swire accounts for many of its long-term assets as investment properties. In 2008, the company noted that it revalued those assets each year for increases and decreases in fair value. During 2008, Swire increased the value of those assets on its books by $177 million in Hong Kong dollars.
1. Can you compose the journal entry made by Swire Pacific accountants to write the assets up in value? What would be the credit portion of the journal entry? Hint: Although you may not know the exact answer, think about it and make an educated guess. Would the credit be to another asset account? Would it be to a liability account?
2. Suppose that in the next year, the assets were again revalued and it was determined that a difference existed between market value and book value of only $100 million Hong Kong dollars. How would this year’s journal entry differ from the previous year’s?