- This topic has 5 replies, 2 voices, and was last updated 10 years ago by
.
- Posts
In the year of revaluation, do we charge the old depreciation in sopl or the new dep to sopl?
Typically in the exams we charge on carrying value up to the date of revaluation and then on revalued amount from date of revaluation up to the year end
Understood?
i am posting 2 questions. i have read them twice so there are no mistakes. Q1 is from kaplan kit and is an mcq. Q2 is a question from the kaplan text. Q1 calculates dep on the new value in the year of revaluation and Q2 uses the dep on the value before revaluation.
1. an entity purchased property for 6m on 1 jul x3. the value of land was 1m and bldg 5m. life is 50 years and no resiual value. on 30 jun x5, it was revalued to 7m (land 1.24, bldg 5.76). on 30 jun x7 it was sold for 6.8m.
what is the gain on disposal on 30 jun x7?
answer:
at 30 jun x5 CV: land: 1m, bldg: 4.8 total=5.8 (dep=5m/50=100,000)
revalued amt: land 1.24, bldg=5.76, total = 7dep for 30 jun x7=5.76/48=120,000
at 30 jun x7, CV: land=1.24, bldg=5.52, total=6760
gain=6800-6760=40.pls note that in this question, he uses the new dep in the year of revaluation.
—————————————————
Q2. on 1 apr x8, the fair value of leasehold property was 100,000 with remaining life of 20 years. the company policy is to revalue its property at each year end. at 31 mar x9 the property was valued at 86000. the balance on the revaluation surplus at 1 apr x8 was 20,000, which relates entirely to leasehold property.the co does not make a transfer to realized profit in respect of excess depreciation.
prepare extracts for the year 31 mar x9.
Answer:
depreciation=100000/20=5000
revaluation:
CV at 31 mar x9=95000
valuation=86000
loss on revaluation=9000here, the dep is being charged at value before revaluation, which is opposite from Q1. shdnt the dep be 86000/20?
please explain this to me.
thanks!!!!!
No it isn’t! The depreciation of 5,000 is calculated on the revalued amount as at 1 April ‘X8. The question tells you that the property is revalued each year and at 31 March X8 it was revalued to 100,000 with a remaining estimated useful life of 20 years as at that date.
Then a year goes by and, just before its next revaluation, it is depreciated for the year ended 31 March X9 (100,000 / 20 = 5,000)
Then it’s revalued at 1 April X9 down to 86,000. For the year to 31 March Y0 it will be depreciated by 86,000 / 19 and then, on 1 April Y0 it will be revalued again
Is that any clearer?
no.:( if i use the logic u gave me, then why is this logic not being applied to Q1? because in q1, the entire year passed and on the last day it was revalued. so, by that account, i shd charge 100000 as dep in x5 but i am charging 120000, which is the new dep.
On the last day it was revalued! So throughout the year, before revaluation, depreciation was being calculated on the pre-revaluation figure ……… the same as it is in the second example
Calculate depreciation on the figure brought. Forward from the previous year up until revaluation date. After revaluation date, calculate depreciation on the revalued amount
Think about this and now apply those principles to the two questions you have given me!
Still got a problem? Post again!u
- You must be logged in to reply to this topic.