Cases
Practical case
Groupe Azur Hôtels (a fictitious company) acquired three hotels that it operates itself (A, B and C) on 1 January 20X1. From acquisition, it chose the revaluation model for the class 'operated hotels'. Its reporting date is 31 December. The hotels are depreciated on a straight-line basis over 40 years with no residual value. Group policy provides for an external valuation every 3 years, or earlier if the market moves significantly, and for the annual transfer of the realised revaluation surplus to retained earnings. A fourth building (D) is leased to a tour operator.
Your assignment
Using the fixed asset register and the two valuation reports, deal with the revaluations at 31 December 20X3 and 31 December 20X5, the transfers for 20X4 and 20X5, and then the disclosures. One item of information is not provided by the valuer: identify it and state your assumption.
Work on this file as you would in practice: read the situation, open the documents, sort the useful information, then carry out the work requested. The solution is revealed once you submit.
Advanced level: no help, the work is grouped by kind.
4 documents: open each one to read it.
Document 1Extract
Acquisition costs at 1 January 20X1: hotel A 4,000,000; hotel B 2,400,000; hotel C 1,600,000. Annual charges until 20X3: A 100,000; B 60,000; C 40,000. Remaining useful life at 1 January 20X4: 37 years.
The figures of the documents, gathered for your work.
| Item | Value | Found in |
|---|---|---|
| Cost of hotel A | €4,000,000.00 | |
| Cost of hotel B | €2,400,000.00 | |
| Cost of hotel C | €1,600,000.00 | |
| Historical annual charge — A | €100,000.00 | |
| Historical annual charge — B | €60,000.00 | |
| Historical annual charge — C | €40,000.00 | |
| Remaining useful life at 1 January 20X4 | 37 years | |
| Fair value of A at 31 December 20X3 | €4,440,000.00 | |
| Fair value of B at 31 December 20X3 | €2,035,000.00 | |
| Fair value of C at 31 December 20X3 | €1,480,000.00 | |
| Fall in the market index (city of A) | 20% | |
| Fair value of A at 31 December 20X5 | €3,350,000.00 | |
| Fair value of B at 31 December 20X5 | €1,925,000.00 | |
| Fair value of C at 31 December 20X5 | €1,520,000.00 | |
| Annual rent of building D | €180,000.00 |
Not every document matters: identify those that affect the accounting treatment.
Part 1 · Classification · Analysis
Sort each document: does it affect the accounting treatment?
Drag each item into its category, or tap the category under the item.
Fixed asset register — operated hotels
Valuation report at 31 December 20X3
Market note and valuation report at 31 December 20X5
Lease of building D
11 tasks in the order of the file. Calculations, entries and effects on the financial statements are marked; written answers are self-assessed against the solution.
Task 1Analysis
What conditions does the revaluation model impose here? Which buildings belong to the revalued class?
Task 2Calculation
Calculate the accumulated depreciation to be eliminated at 31 December 20X3.
Part 1 · Calculation
Calculate the accumulated depreciation to be eliminated at 31 December 20X3.
Result: Accumulated depreciation of C at 31 December 20X3
Task 3Calculation
Calculate the revaluation differences at 31 December 20X3 and their split between profit or loss and other comprehensive income.
Part 1 · Calculation
Calculate the revaluation differences at 31 December 20X3 and their split between profit or loss and other comprehensive income.
Result: Decrease on B in profit or loss
Task 4Journal entries
What journal entries do you record at 31 December 20X3?
Part 1 · Journal entry · Journal entries
Entry 1 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Part 2 · Journal entry · Journal entries
Entry 2 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 3
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 4 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Part 5 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 5Calculation
Calculate hotel A's depreciation from 20X4, the annual transfer of the realised surplus and the balance of A's surplus at 31 December 20X5.
Part 1 · Calculation
Calculate hotel A's depreciation from 20X4, the annual transfer of the realised surplus and the balance of A's surplus at 31 December 20X5.
Result: Revaluation surplus on A at 31 December 20X5
Task 6Professional judgement
Is a revaluation needed at 31 December 20X5, only two years after the last valuation? Must all three hotels be revalued?
Task 7Calculation
Calculate the accumulated depreciation to be eliminated at 31 December 20X5.
Part 1 · Calculation
Calculate the accumulated depreciation to be eliminated at 31 December 20X5.
Result: Accumulated depreciation of C at 31 December 20X5
Task 8Calculation
Calculate the revaluation differences at 31 December 20X5 and their split.
Part 1 · Calculation
Calculate the revaluation differences at 31 December 20X5 and their split.
Result: Increase on C in other comprehensive income
Task 9Journal entries
What journal entries do you record for the 20X4 and 20X5 transfers and the revaluation at 31 December 20X5?
Part 1 · Journal entry · Journal entries
Entry 1 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 2 · Journal entry · Journal entries
Entry 2 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 3 · Journal entry · Journal entries
Entry 3 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Line 3
Line 4
Line 5
Line 6
Part 4 · Journal entry · Journal entries
Entry 4 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 5 · Journal entry · Journal entries
Entry 5 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Part 6 · Journal entry · Journal entries
Entry 6 of 6
One line = one account and one side. Add a line if the entry needs more; the balance check updates live.
Line 1
Line 2
Task 10Effects on the financial statements
What is the impact of these entries on the 20X5 financial statements, and what must be disclosed in the notes?
Part 1 · Calculation
What is the impact of these entries on the 20X5 financial statements, and what must be disclosed in the notes?
Result: Carrying amount under the cost model at 31 December 20X5
Part 2 · Classification · Analysis
State the direction of the effect on each financial statement aggregate.
Financial position (balance sheet)
Profit or loss
Other comprehensive income
Equity
Notes
Part 3 · Calculation · Analysis
Quantify the effect on the aggregates concerned.
Result: Amount of the effect — Equity
Task 11Conclusion
Write the conclusion for the audit committee.
Your working draft for this file: points noted, leads, intermediate calculations.
Saved on this device only; never graded.
Complete every item of the file to submit it (0 / 23).
Document this file
These working papers use the data and results of this case.
Normative references