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On 1 May 2012, Marchant purchased an item of property, plant and equipment for $12 million and this is being depreciated using the straight line basis over 10 years with a zero residual value. At 30 April 2013, the asset was revalued to $13 million but at 30 April 2014, the value of the asset had fallen to $7 million. Marchant uses the revaluation model to value its non-current assets. The effect of the revaluation at 30 April 2014 had not been taken into account in total comprehensive income but depreciation for the year had been charged.
My Answer:
Cost = $12m
Depreciation = $1.2m
CV at 30 Apr 2013 = 10.8 But FV = $13m
so Surplus/Gain to OCI = 2.2 minus the excess depreciation which is 0.24 (1.44 – 1.2)
surplus balance is 2.2-0.24 = $1.96mAt 30 Apr 2014 CV = 13 – 1.44 = $11.56m but RA = $7m so giving impairment loss of $4.56m
So impairment loss first charged to OCE to exhaust $1.96m and remaining balance goes to P & L which is $2.6m
Please provide feedback? Do you i worked it right?
Many ThanksI don’t think so, but you’re not far wrong
Your comment about excess depreciation of .24 – the depreciation was calculated on the original 12 million so in that first year there is no excess depreciation. That means that, on the reversal of the gain in 2014, 2.2 million will go to OCI and the rest as an expense to profit or loss
Otherwise you’re right
So you are saying we don’t take the excessive depreciation out in the 1st year but take it away in the subsequent year (2nd Year).
Thanks
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