# Depreciation Example 5

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• says

You are very wrong.

However if you are so sure then you should pay for tuition and then discover that you are wrong.

• 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 )

• says

I certainly will Sir. Many thanks.

1. says

I don’t understand why accumulated depreciation is included in the revaluation a/c?

• says

Because what we are revaluing is the net book value (carrying value) and the net book value is the cost less the accumulated depreciation.

2. 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!

3. 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.

• 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)

4. says

Hi,

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.

• 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

5. 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.