Gannet Co uses the revaluation model for land, which cost $1,000,000. In 20X3 the land was revalued to $1,300,000. In 20X6 a slump in the property market reduced its value to $850,000. How should the 20X6 decrease be recognised?

Correct answer: B) $300,000 charged to OCI (revaluation surplus) and $150,000 charged to profit or loss

Explanation

Total decrease = $1,300,000 - $850,000 = $450,000. A revaluation decrease is first set against any surplus previously recognised for the same asset, which here is $1,300,000 - $1,000,000 = $300,000 (charged to OCI). The remaining $450,000 - $300,000 = $150,000 takes the land below its original cost, so it is charged to profit or loss.