- This topic has 15 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Dear sir,
1.Is revaluation surplus, profit on revaluation and gain on revaluation the same thing?2.B purchased an office building on 1 January 2011. The building cost was $1,600,000 and this was depreciated by the straight line method by 2% per year, assuming a 50-year life and nil residual value. The building was re-valued to $2,250,000 in 1 January 2016. The useful life was not revised. The company’s financial year ends on 31 December.
What is the balance on revaluation surplus at 31 December 2016?
In the revision kit, the answer is B $792,000I have done 2,250,000-(1,600,000 x 2%x 5yrs)=$810,000. Why is this not the answer?
1. Yes – they are the same thing.
2. The profit on revaluation is 810,000 as at 1 Jan 2016.
The depreciation on the new value for the year ended 31 Jan 2016 is 2,250,000 / 45 = 50,000. The depreciation using the old value would be 2% x 1600000 = 32,000The excess depreciation is 50,000 – 32,000 = 18,000.
So 18,000 will be transferred from the revaluation surplus to retained earnings, leaving the revaluation surplus as 810,000 – 18,000 = 792,000.
Thank you sir
Just briefly,could you explain why the depreciation of new value should be deducted with the old one?
The gain on revaluation is kept as a separate reserve because it is not distributable (cannot be paid as dividend).
The depreciation expense in the SOPL is higher than it would have been because it is based on the revalued amount.
So the excess of the depreciation on the revalued amount over the depreciation on the original cost is due to the revaluation and can be distributable – so we are allowed to transfer the excess from the revaluation reserve to retained earnings.
Dear sir,
For sales of disposal you have done a summery at the end of the page. Could you do the same thing for part exchange?Thanks.
Sorry but no.
Part exchange is just like selling an asset and buying a new asset with the proceeds.
So instead of debit cash and credit disposal account with the proceeds, we debit the new asset and credit disposal account with the part exchange amount. Then we credit cash and debit the new asset account with the extra cash payable.
1.” To reduce the cos of the asset on the SOFP to it’s estimated market value”
-Why this statement is not a purpose of charging depreciation in accounts?2.An asset register showed a carrying value of $67,460. A NCA costing $15,000 had been sold for $4,000, making a loss of $1,250. No entries has been made in the asset register for this disposal. What is the correct balance on the asset register?
-What is an asset register?
-What is the answer?Please – you clearly have not watched the lectures because I clearly stress the first point in my lectures on depreciation. I am not going to type out the lectures here!
With regard to the second point, the asset register is a book listing all of the non-current assets and keeping a note of when they were bought and the amount of depreciation.
It is not part of the double entry – it is simply that some (not all) businesses like to keep a separate list of all the non-current assets because it helps them to keep control of them.
So the balance on the asset register is the current carrying value (net book value) less the net book value of the asset sold.(If you do not have an answer in your book, then use the search box on this website and you find that I have answered this question before)
1.Is road tax and sales tax capital or revenue expenditure?(I do have watched your lectures but still have some confusion)
2.S purchased a machine with an estimated life of 5 years for $34,000 on 30 September 20×5. S planned to scrap the machine at the end of it’s useful life and estimate that the scrap value at the purchase date was $4,000. On 1 october 20×8, S revised the scrap value to $2,000 due to the decreased value of scrap metal
What is the depreciation charge for the year ended 30 September 20×9?
The answer is $7,000
– Could you please help me with this question?Thanks.
1. Road tax is revenue expenditure.
Sales tax is neither capital nor revenue (unless the trader is not registered for sales tax in which case it forms part of the total expenditure which is itself either capital or revenue).2. NVB at 1.Oct X8 = 34,000 – 3 x (34,000 – 4,000)/5 = 16,000
Dep’n for X9 = (16,000 – 2,000)/2 = 7,000
“with proportionate depreciation in the years of purchase and disposal?
Could you explain, what does this mean?
- The topic ‘depreciation’ is closed to new replies.