FINANCIAL ACCOUNTING AND REPORTING
Case-Accounting for revaluations
On 1 January 2016, Good Ltd acquired a block of land for $100000 cash and on the same day better ltd purchased the adjacent block, which was virtually identical to the block purchased by Good ltd also for $100000 cash, Both companies intended to construct industries warehouse on these properties .For the next 2 years the property market went through a boom period and by co incidence ,on June 2018 both companies obtained independent valuations of $180000for their blocks of land.
Good ltd has decided to adapt the revaluations model for land in the accounts on the last day of the year ended 30 June 2018, by following the requirements of IAS/AASB 116.Better ltd decided to use the cost model.
On 30 April 2019 each company sold its block of land for $200,000 cash.
Required
B. Give reasons for the discrepancy in profit figures between the two companies. Does the existence of the discrepancy make sense? What message is being conveyed to users the performance of both companies? Discuss fully. How can the discrepancy be avoided?