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at the end of asset 7th year
asset original cost $800,000
depre 7 years at10% strait line $560,000to be revalued by 600,000
remaining life revised to 5 years
my choice
revaluation reserve 360,000, depre for next year 120,000correct answer is 600,000 and 168,000
really surprised with the correct answer
Original Value of Asset: $800,000
Original Acc. Depreciation: $560,000 (7 yrs)
Net Book Value at 7th year: $240,000To be revalued by $600,000
(Note the word “by”…it means to make additions of 600,000 to the current value. If the qn had said to increase the value “to 600,000” then ur answer wud have been correct. You jus misunderstood the terms “by” with “to”.)Net book Value + Revaluation = $240,000 + $600,000 = $840,000
Revalued Asset Value = $840,000
Depn Life of Asset= 5 years
Depreciation = Revalued asset value divide by useful remaining lifeDepreciation = $840,000 / 5 yrs = $168,000
hope that helps 🙂
Congratulations Dizzycat to your elevated status of tutor! I presume that you thought that I was too slow in answering the post from wxy!
Wxy, Dizzycat is correct in pointing out your misinterpretation / misreading of “by” as “to”
However, what our feline friend has failed to point out is the correct journal entry to increase the carrying value by 600,000
The credit entry is clearly to the revaluation reserve, but you need to take care with the debit
The first 560,000 of the revaluation will be debited to the Accumulated Depreciation Account with only the remaining 40,000 being debited to the asset account itself
The Cat is correct that the annual depreciation over the remaining 5 years of the asset’s expected remaining useful life is therefore 20% per annum calculated on the newly revalued 840,000
Ok?
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