Reference no: EM132984046

ABC Ltd acquired a property on 30 June 2016 at a cost of $4,000,000. The company initially measured the property at a cost in accordance with AASB 116 "Property, Plant and Equipment" and depreciated it over a useful life of 50 years on a straight-line basis. At 30 September 2020, ABC Ltd decided to revalue the property because the value of the commercial property significantly increased over the last year, and the property is now worth more than the original $4,000,000 cost. Melbourne Appraiser Ltd, an independent valuer, has prepared a report on the market value of the property based on use as an office block. It measures the value of the property to be $4,800,000. In recent transactions for similar properties, sellers wishing to achieve a quick sale have accepted offers of 10 per cent less than market value.

Required:

Problem (a) Describe the advantages and disadvantages of using the revaluation model rather than the cost model in the context of the qualitative characteristics of the AASB "Conceptual Framework for Financial Reporting".

Problem (b) AASB 116 "Property, Plant and Equipment" requires disclosure of whether an independent valuer was involved in the asset revaluation process and the carrying amount that would have been recognised under the cost model. Explain why these disclosures are required in the context of the qualitative characteristics of the AASB "Conceptual Framework for Financial Reporting".