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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 4,000
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16,000
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The 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 appropriate.The only difficulty I am having is understanding the calculation of Air conditioning system. Its recoverable amount is 500. So don’t we record the lower of Carrying amount and recoverable amount in the SFP? Why did they subtract that 500 from 4000?
Air conditioning system (4,000 – (3,500/10 x 6/12)) 3,825
“When the air conditioning system is due for replacement, it is estimated that the old system will be dismantled and sold for $500,000.”
You need to think about this before I answer
Where, on the first day of the accounting period, an asset is acquired for $5,000,000 and it has an estimated useful life of, say, 10 years with an estimated sale price at the end of its useful life of $500 (five hundred dollars), at what value will we show that asset in the financial statements at the end of the first year?
Now, do I need to answer your question about the air-conditioning system?
OK?
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