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Dear Sir,
I do not understand the following question answer extracted from BPP.
“At the date of acquisition of P Co, the fair value of its freehold property was considered to be $400,000 greater than its value in P Co’s statement of financial position. P Co had acquired the property ten years earlier and the building element (comprising 50% of the total value) is depreciated on cost over 50 years.
The answer given was “(0.50*400,000)/40 years * no of years since acquisition.
How come they divided by 40 years instead of 50 years? Is it because they had changed model from cost model to revaluation model? That’s why divided by remaining useful life.
Thanks!
No, it’s because at the date of takeover there are only 40 years of the original 50 left to go. The asset was bought 10 years ago and had a 50 year life so 50 – 10 = 40
Ok?
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