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Tibet acquired a new office building on 1 October 2014. Its initial carrying amount consisted of:
$’000
Land 2,000
Building structure 10,000
Air conditioning system 4,000The estimated lives of the building structure and air conditioning system are 25 years and 10 years respectively. When
the air conditioning system is due for replacement, it is estimated that the old system will be dismantled and sold for
$500,000. Depreciation is time apportioned where appropriateIn the above question, in the calculation of AC system, they have deducted the 500 selling price of the AC from its 4000 CA. Can you tell me why this is? the AC has not been sold yet so why deduct the selling price from CA?
“the AC has not been sold yet so why deduct the selling price from CA?”
I assume that the deduction of the $500 scrap value is in the workings and it’s there so that we can calculate how much asset needs to be depreciated over the 10 years
So the working should appear something like:
($4,000 – $500) / 10 = $350 depreciation per annum
Am I right?
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