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Depreciation Example 5
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Hi. Im confused! Shouldn’t we be multiplying 2% by the accumulated depreciation i.e. $1 080 000? why do we multiply it by the cost?
Ammm… I think i got it..!!
how does he calculate the 50 years ?
It is being depreciation at 2% straight line.
This means that the cost is being spread over 50 years. (50 x 2% = 100%)
how does he get a profit when the asset has been revalued at a lesser amount than the original cost?
The profit is the difference between the revalued amount and the net book value. The net book value is less than the revaluation.
can some one please help solve question 1 on the test section, thanks
Please can someone solve question no 4 on the test section.Thanks.
Dear All,
please clarify if the balance on ACCUMULATED DEPR. A/C is = 44 522 $ ?
so on the balance sheet we put:
a) non-current assets: 3 027 478 $
building a/c 3 072 000 $
accum. depr. a/c (44 522) $
is it correct?
Thank you so much for your help.
Would the accounting treatment be same in case of initial revalued amount more than the current worth (here its going down)? Would Revaluation A/c still be debited?
No, if revalued amount were greater than original cost in NCA a/c, NCA a/c would have to be debited with the difference between the two and the Revaluation a/c credited thereafter. You have to decide on how you will adjust the cost account, whether by a debit or a credit, for it to reflect the revalued amount in the end. And by the way, revalued amount is not greater than current worth. CV= 3.6m – 1.116m= 2.484m < 3.072m (revalued amt)
Can anybody explain to me how the (528,000)was got
Thank you very much Opentuition, however i’ll be grateful if you could plz specify whether we should add up an Accumulated Profit account? If i read page “the excess of the new charge over the old charge should be transferred from the revaluation a/c to accumulated profits. So, here we have an excess of $ 8522 ($80 522 – $ 72 000). Should this amount be reflected in the Accumulated Profit account?
Thank you
@nzeadall, Yes, within the Statement of Changes in Equity there will be a transfer reducing the Revaluation Reserve Account and increasing the Retained Earnings ( also called Accumulated Profits )
@MikeLittle, thank you v much, just one last question if you don;t mind, so in this example, I’ll credit Revaluation Reserve A/C with $588 000 and Debit it by $ 8522. Then, we credit Acc. Profit A/C by $ 8522. Also, what is the purpose of this transfer since we have already accounted for the profit ($ 588000 made in the Revaluation a/c). I mean this is an unrealised profit in any case, why do we need to transfer the excess to Acc. profit a/c? Once again, Thank you so much for your help
can anybody explain to me q1, ch 6 (F3) please?
why it was a profit because the cost of building was 3600000 and now its after revaluation is 3072000 it has actually gone down
At the time of revaluation the accumulated depreciation was 1,116,000.
(3,600,000-1,116,000=2,484,000).
as 3,072,000 is higher than 2,484,000 it’s a profit.
You can also see that the depreciation amount has gone up from 72k a year to 89k a year showing that the building is worth more.
I can’t imagine it’s the sale price but the depreciated amount after 15.5 years. If you calculate that back (89kx15.5years + 3,072,000) then you’ll get something like 4.45m. A tidy profit.
@ Poutybud its 52000
When calculating dep for last 6 months i m confused about life 50 years then 34.5 years…. howz that plz explain
at the time of revaluation the accumulated depreciation is 1,116,000.
We know that the annual amount is 72,000 (2% of 3,600,000). Divide the accumulated dep’n buy the annual figure then you get 15.5 years; i.e. if you charge 72k a year, then it would take 15.5 years to get the balance up to 1,116,000.
50 – 15.5 = 34.5 years as there is no change in the remaining useful life of the building.
89k happens to be 2% of the original cost if you calculate the revalued cost back over the previous 15.5 years (ca 4.45M)
Hi. I’m confused as to why the useful life needed to be calculated after the asset was revaluated and not before revaluation. To get the figure of 36000 we didn’t need to calculate the number of years? Thanks!
We need the remaining useful life in order to calculate the new depreciation figure.
We didn’t need it to calculate the 36000 because we were told the depreciation had been at the rate of 2% of cost (which was the same as saying that the original useful life was 50 years, because 50 years at 2% is 100%!)
Question No 4 on the test section, page 46, which value of the machine is to be used to calculate the new depreciation charge after the useful life was revised to 3 years ? $70,000 or $52,000 ?
good job very nice