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In the trial balance related to pricewell at 31/3/2009.
Right of use of asset at cost was 20 million
Acc dep at 31 March 2008: 5,000
Depreciation is at 25% per annum using the reducing balance method.
Solution :
Cost per trial bal. = $20m
dep at 31/3/2008 = $5mDep 25% = $5m
Bal : = $10mSir why?
I taught the reducing bal reduces the CA ?
20-5 = 15
2009 dep = 15 * 25% = 3.75Total = 11.250.
Depreciation 1 April was already $5m
Depreciation charge was 20m * 25% why using the cost instead of the CA ? Which is supposed to be 15m * 25%?
Here are two separate lines from paragraph (i) in the question
“Owned plant is depreciated at 25% per annum using the reducing balance method”
“Leased plant is depreciated at 25% per annum using the straight-line method”
OK?
Yes what I am saying the carrying value at reducing bal is supposed to $15m * 25% because of the Acc dep of $5m or am I missing something out of exam tension on Tuesday pls, assist .
Is the item of plant that you are referring to leased, or is it owned?
OK?
No sir there were several items of owned plant, leasehold property and right of use assets .
I can do the others correctly but the right of use referring to note one at was on the trial balance was 20million with Acc dep as at 31 March 2008 was $5m.
The leasehold property at valuation 31 March 2008 25.2 million .
Owned plant & equipment at cost $46.8 million with Acc dep at 31 March 2008 per trial balance .
Leasehold property in d note has 15 years and was acquired 1 April 2007 at cost of $30million. Revalued at fair value each year. The value in the trial bal of 25.2 million as at 31 March 2008 led to an impairment charge of 2.8m which reported in d SPL & OCI in d year 31 March 2008. At 31 March 2009 the property was valued at $24.9m.
Owned plant is depreciated at 25% pa using reducing balance method.The right of use plant was acquired on 1 April 2007 . The rental are $6m pa for 4 years payable in arrears on 31 March each year. The interest rate implicit in the lease is 8% pa . Right of use plant is depreciated over the lease period. No depreciation has yet been charged on any NCA for the yr ended 31 March 2009. All depr is charged to cost of sales.
Solution Kaplan.Leasehold property
Cost 1 April 2008 = $25.2mDep charge 1/14 * $25.200
$23.4m
Revaluation/ CA 31 March 2009 = $24.9
Surplus = $1.5mOwned plant
Cost 1/4/2008 = $46.8m
Dep 1/04/2008 = $(12.8m)
$34m
Charge for the yr = $34m * 25%
CA = 25.5mRight of use plant
Cost 1 April 2008 = $20m
Dep 1 April 2008 = ( $5m)
Charge $20m * 25% = ($5)
CA 31 March 2009 = $10mThe right of use plant is my biggest challenge here .
Why still using the $20m and charge dep using still same amount at cost when there is an acc dep of $5m already per trial Bal?
Looking st the note it was acquired 1 April 2007. And trial bal which relate to pricewell at 31 March state that right of use assets at costs (note (1) $20m with Acc dep at 31 March 2008 $5m.
I’m pushing you as hard as I possibly can without actually saying it outright!
I wanted you to work out / realise why the treatment is what it is
However, this has gone on long enough and I reluctantly will spell out the answer to your question
The asset is a “right of use” asset and is, therefore, a leased asset
And because it’s a leased asset, the depreciation policy is, per the question, “Leased plant is depreciated at 25% per annum using the straight-line method”
That being so, the depreciation is NOT based on reducing balance!
OK now?
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