On 1 January 20X0, an asset that had an original useful life of five years and a cost of $100 000, had a carrying amount of $60 000 (the asset had been depreciated for two years at $20 000 per annum). On 1 January 20X0, it was decided to revalue the asset upward to $90 000 with no change in its useful life. A year after the revaluation on 1 January 20X1, the asset was sold for $80 000. Under the provisions of AASB 116, the gain or loss on disposal is:

Question

BlackTom AI · Accepted Answer

Carrying amount after revaluation is key: on 1 Jan 20X0 the asset is revalued to $90,000 and subsequent depreciation is based on that revalued amount.

1. Relevant knowledge points and concepts
- AASB 116 revaluation model: increases in value are credited to revaluation surplus (equity) unless reversing a previous loss; decreases hit profit or loss.  
- Depreciation after revaluation uses the revalued carrying amount and the remaining useful life.  
- Gain or loss on disposal is proceeds less carrying amount at the disposal date; revaluation surplus does not change the gain/loss computation (though any related surplus is transferred to retained earnings on disposal).

2. Step-by-step reasoning
- Original cost and depreciation history determine carrying amount before revaluation.  
- Apply the revaluation to set a new carrying amount at 1 Jan 20X0.  
- Compute annual depreciation after revaluation using remaining useful life.  
- Find carrying amount at disposal (1 Jan 20X1) and subtract from sale proceeds to get gain/loss.

3. Calculations (all intermediate steps)
- Original cost = $100,000. Depreciation per annum initially = $20,000.  
- Accumulated depreciation after 2 years = 2 × $20,000 = $40,000.  
- Carrying amount on 1 Jan 20X0 before revaluation = $100,000 − $40,000 = $60,000.  
- Revalued carrying amount on 1 Jan 20X0 = $90,000 (increase of $30,000 recognized in revaluation surplus).  
- Remaining useful life = original 5 years − 2 years used = 3 years. Depreciation after revaluation = $90,000 ÷ 3 = $30,000 per year.  
- Carrying amount on 1 Jan 20X1 (after one year’s depreciation) = $90,000 − $30,000 = $60,000.  
- Sale proceeds = $80,000. Gain on disposal = $80,000 − $60,000 = $20,000.

4. Why the correct answer is correct
Because the gain is computed as proceeds less the carrying amount at the disposal date; after revaluation and one year’s revalued depreciation the carrying amount is $60,000, so the $80,000 sale yields a $20,000 gain.

5. Why other options are incorrect
- $30,000 gain would require a carrying amount of $50,000 (not supported by depreciation/revaluation).  
- $10,000 gain would require a carrying amount of $70,000 (not the computed amount).  
- $10,000 loss would require carrying amount of $90,000 (sale below carrying amount), which is not the case.

6. Conclusion
The gain on disposal under AASB 116 is $20,000, matching the provided answer.

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