What is the net revaluation amount after Leader Limited acquired 100% of the share capital of Follower Limited?
The net revaluation of the assets is B. R35,000. This is calculated by taking the fair value of each asset minus its book value to determine the revaluation amount, and then applying the tax rate of 30% to the total revaluation amount before tax. The net revaluation amount is calculated by taking the fair value of the assets minus their book value. In this case, the fair value of the land is R90,000, and its book value is R50,000. So the revaluation of the land is R90,000 - R50,000 = R40,000. Similarly, the fair value of the equipment is R70,000, and its book value is R60,000. Therefore, the revaluation of the equipment is R70,000 - R60,000 = R10,000. To calculate the net revaluation amount after tax, we need to consider the tax rate of 30%. We apply the tax rate to the revaluation amount to determine the after-tax revaluation. The total revaluation amount before tax is R40,000 + R10,000 = R50,000. Applying the tax rate of 30% to R50,000 gives us R50,000 * 30% = R15,000 in taxes. Subtracting the tax amount from the total revaluation amount before tax gives us the net revaluation after tax: R50,000 - R15,000 = R35,000. Therefore, the net revaluation of the assets is R35,000.
Understanding Net Revaluation Amount after Acquisition
Net Revaluation Calculation: The net revaluation amount is calculated by subtracting the book value of an asset from its fair value to determine the revaluation amount. In this case, the fair value of the land owned by Follower Limited was R90,000, while its book value was R50,000. Therefore, the revaluation amount for the land is R90,000 - R50,000 = R40,000. Similarly, the fair value of the equipment was R70,000, with a book value of R60,000, resulting in a revaluation amount of R70,000 - R60,000 = R10,000.
Impact of Tax Rate:
Tax Rate: The tax rate applied to the revaluation amount is 30%. After calculating the total revaluation amount before tax (R40,000 + R10,000 = R50,000), the tax amount is determined by applying the tax rate of 30% to R50,000, resulting in R15,000 in taxes. Subtracting the tax amount from the total revaluation amount before tax yields the net revaluation after tax, which is R50,000 - R15,000 = R35,000.
Significance of Net Revaluation Amount:
Financial Reporting: The net revaluation amount of R35,000 reflects the increase in the value of Follower Limited's assets after Leader Limited's acquisition. This amount is crucial for the financial statements of Leader Limited as it signifies the appreciation in asset values post-acquisition.
In conclusion, the net revaluation of the assets after considering the tax rate is R35,000. This calculation involves determining the revaluation amount for each asset, applying the tax rate, and arriving at the net revaluation figure. It is an essential aspect of financial reporting following the acquisition of Follower Limited by Leader Limited.