1. Profile photo of Toni says

    when we calculate the new depreciation per year after the revaluation , shall we consider the residual value of the assets?? we just use the remaining years divide the new value or something??

  2. Profile photo of waseem says

    Hey john,
    Could you solve following question for me. Banjo Co purchased a building on 30 June 20X8 for $1,250,000. At acquisition, the useful life of the building was 50 years. Depreciation is calculated on the straight-line basis. 10 years later, on 30 June 20Y8 when the carrying amount of the building was $1,000,000, the building was revalued to $1,600,000. Banjo Co has a policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings.
    Assuming no further revaluations take place, what is the balance on the revaluation surplus at 30 June 20Y9?
    A $335,000 B $310,000 C $560,000 D $585,000

    • Profile photo of John Moffat says

      In future, please ask questions like this in the Ask the Tutor Forum (and not as a comment on a lecture).

      The depreciation on the original cost was $25,000 a year.

      On revaluation, there is a revaluation surplus of 600,000 (1,600,000 – 1,000,000).

      There are 50 years left for the building, and so the new depreciation will be 1,600,000 / 40 = $40,000 a year. The is what is charged in the Statement of profit or loss.

      However the excess over the original depreciation of 15,000 (40,000 – 25,000) is transferred from revaluation surplus to retained earnings. So the balance left on revaluation surplus is 600,000 – 15,000 = $585,000

  3. Profile photo of Rustam says

    Sir, a tiny misleading. always i did like Kelechi did, without T accounts. like what it should be and what it is. so difference is loss/gain. but in the last working, Revaluation account is an asset account? (not like “Revalutaion surplus” is capital account (Credit acc).
    Because when we’re debiting with rev’n surplus (528K) we should also debit this account with acc.dep’n…this is then nonsense… it concludes that it is just new building account (asset acc.).:)

    • Profile photo of John Moffat says

      It is not an asset account – I really do not know what you are trying to say.
      Why on earth should we debit it with the accumulated depreciation? We debit accumulate depreciation to remove it, and credit the revaluation account. The revaluation account is being use to calculate the gain on revaluation.
      (And there is never going to be a loss – in F3 we only will revalue upwards.)

  4. avatar says

    Hello, for this example 5, you say that we have a gain or profit on revaluation of 588,000. Could you explain how else I could know whether we would have a loss or a gain by merely looking at the question (or intuition) even if I would not know the exact figure of profit or loss.

  5. avatar says

    Hi. I have a little bit of confusion on this statement from the lecture notes and would like further clarifications: “…and then excess of the new charge over the old charge should be transferred from the revaluation reserve to accumulated profits.”
    Many thanks

    • Profile photo of John Moffat says

      We calculate the depreciation on the revalued amount, and this is charged as an expense in the Statement of profit or loss.

      We then calculate what the depreciation would have been if there had not been a revaluation. The difference between the two figures is then transferred – Dr Revaluation reserve; Cr Retained earnings (accumulated profits).

      • avatar says

        Ok, thanks for clarifying. Would this be done only in the year of revaluation and then no more? Thanks

  6. avatar says

    I need help in this question.

    A business purchased an asset on 1 Jan 20X1 at a cost of $160,000. The asset had an expected life of 8years and a residual value of $40,000. Straight line method is used to measure depreciation. The financial year ends on 31 Dec.

    At 31 Dec 20X3 the estimated remaining life of the asset from that date is now expected to be only 3 more years, but the residual value remains unchanged.

    What will be the net book value of the asset as at 31 December 20X3, for inclusion in the statement of financial position?

  7. Profile photo of minhalgulamhussein says

    hello sir. Sir, i am stuck in one question of depreciation. Below is the question;

    A firm bought a car for $10,000 on 1 January 200, which had an expected useful life of 4 years and expected residual value of $2,000.
    Th e firms policy is to charge depreciation in the year of disposal.
    On 31 December 2011, the car was sold for for $3,200.

    What amount would appear in the statement of profit or loss for the year ended 31 December 2011, for the loss on disposal?

    • Profile photo of John Moffat says

      In future you must ask questions like this in the Ask the Tutor Forum – not as a comment on a lecture.

      The depreciation is (10000-2000)/4 = 2,000 per year.
      You have not typed what year it was bought in and so I cannot answer in full. There will be depreciation for each year (including 2011). The profit or loss on disposal will be the difference between the sale proceeds of 3,200 and the book value at 31.12.2011

  8. avatar says

    Hello sir.Can you please help me,I didn’t understand something.
    Isn’t depreciation calculated on the original price?And here we calculated it on the $3,600,000.But isn’t this the depreciated price?
    Also,in the building a/c also we valued the building at the depreciated value of $3,600,000.Shouldn’t it have been at the original price?

    • Profile photo of John Moffat says

      The question says that the cost was 3,600,000. Therefore this was the original cost.
      And yes – since the depreciation is straight line, it is calculated on the original cost of 3,600,000 (until, of course, the revaluation).

      (I assume that you have printed out the free Lecture Notes that are used in the lectures? Otherwise there is no point in watching the lectures.)

    • Profile photo of John Moffat says

      There are two ways of getting the same answer. One way is the way it is done in the answers at the end of the Lecture Notes, but maybe you will be happier with this way:

      From 1 Jan up to 13 March (3 months) the cost is 240,000. So the depreciation for this period is 3/12 x 20% x 240,000.
      On 31 March they sell some, so from 1 April to 30 June (3 months) the cost is 180,000. So the depreciation for this period is 3/12 x 20% x 180,000.
      On 30 June they buy more, so the cost becomes 340,000 and stays at this from 1 July to 31 December (6 months). So the depreciation for this period is 6/12 x 20% x 340,000.

      Add up the three workings and the total comes to 55,000 (as per the answer at the back)

      (In future, it is better if you ask specific questions like this in the F3 Ask the Tutor Forum, then I am certain to see it :-) )

  9. avatar says

    Stuck again here… Question 4 on the test.

    70K – 7K = 63K depreciation charge 9K p.a.

    Charge for 2000. and 2001 = 18k

    NBV at start of of 2002 = 52k

    we change useful life – 52k – 7k – 45k / 3 = 15k

    Accumulated depreciation should = (2000: 9K, 2001: 9K, 2002: 15K) = 33K?

    My answer is not correct, so I want to understand what exactly I have done wrong? thanks!

  10. avatar says

    Hi, i’m stuck on Ex.5, when you calculated the second depreciation for the last 6 months. Why was it not calculated simply as: 2% * 3’0720’000 * (6/12).
    Many thanks.

    • Profile photo of John Moffat says

      2% straight line is equivalent to spreading the cost over a useful life of 50 years (100% / 2%).

      Before the revaluation, the depreciation was 2% x 3,600,000 = 72,000 per year, and since the accumulated depreciation was 1,080,000, it means that we must have been using the asset for 1080000/72000 = 15 years as at 31 December 2002. So at the date of the revaluation we had used it for 15.5 years.

      Since the useful like originally was 50 years, and the question says there is no change in the remaining life, it means that 50 – 15.5 = 34.5 years remain.

      So we must depreciation in future over 34.5 years which is 3072000 / 34.5 = 89,043 over year. (Only 6/12 for the year in which we revalue because it occurred 6 months through the year)

  11. avatar says


    Could you please walk us thru the Test Question # 4?

    To me, they made a loss but loss is not an option in the MCs.

    This is my working.

    Depreciation expense p.a:($70,000-$7,000)/7yrs = $9,000 p.a.

    At the end of yr 2, the worth of the machine is $70,000-$18,000 = $52,000

    Two years later the useful life was revised to 3 remaining years, and at 31 Dec the machine was sold for $30,000 (at the end of yr3)

    ($52,000-$7,000)/3 = $15,000

    Machine worth by the end of yr3 = $52,000-$15,000 = $37,000

    PnL of Sale = $37,000-$30,000 = $7,000 loss.

    • avatar says

      At the beginning of 2002 the machine’s value is 52,000.
      You have to depreciate 15k for 2002 and 2003 which would give you 52k – 30k = 22,000 remaining on the asset value.

      30k – 22k = 8k profit

  12. avatar says

    Hello there,

    I’m confused regarding Example 5. The original cost of building was $3,600,000. and the revaluated amount was $3,072,000. Isn’t that a LOSS of $528K? Since the value of the building dropped.

    Thanks in adv.

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