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The following information is available for the year ended 31 October 2012:
Hi Mr Moffat,
Kindly help me with this question pls.
Property Cost as at 1 November 2011 $102,000
Accumulated depreciation as at 1 November 2011 $20,400
On 1 November 2011, the company revalued the property to $150,000.
The company’s policy is to charge depreciation on a straight-line basis over 50 years. On revaluation there was no change to the overall useful economic life. It has also chosen not to make an annual transfer of the excess depreciation on revaluation between the revaluation reserve and retained earnings.
What should be the balance on the revaluation reserve and the depreciation charge as shown in the financial statements for the year ended 31 October 2012?
Depreciation Charge Revaluation Reserve
A $ 3,750 $ 68,400
B $ 3,750 $ 48,000
C $ 3,000 $ 68,400
D $ 3,000 $ 48,000My query to this problem is that in the answer it gave no explanation of the remaining useful life of the asset and how it resulted to the correct answer ( A ).
In situations like this, how do we calculate the remaining useful life & how do we find exactly how many years the company used the non-current asset in order to calculate the charge of depreciation?
Prior to the revaluation, the depreciation each year was 102,000 / 50 = 2,040 per year.
The accumulated depreciation was 20,400, which means that they must have had the asset for 10 years (20,400/2,040).So when they revalue to 150,000 there must be 40 years life left (50 – 10) which means that the depreciation in future must be 150,000 / 40 = 3,750 per year.
The revaluation reserve is the difference between the revalued amount of 150,000 and the carrying value prior to revaluation of 81,600 (102,000 – 20,400).
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