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- This topic has 2 replies, 2 voices, and was last updated 5 years ago by unibuti.
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- December 15, 2018 at 4:23 pm #492039
Dear Sir,
Could you please explain to me the answer to this question?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
Total 16,000
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.
At what amount will the office building be shown in Tibet’s statement of financial position as at 31 March 2015?
$’000
A
15,625B
15,250C
15,585D
15,600The aswer is A:
Six months’ depreciation is required on the building structure and air conditioning system.$’000
Land (not depreciated) 2,000
Building structure (10,000 – (10,000/25 x 6/12)) 9,800
Air conditioning system (4,000 – (3,500/10 x 6/12)) 3,825
Total 15,625So why is the depreciation of Air conditioning is calculated based on the cost of 3500, not 4000?
December 17, 2018 at 6:17 pm #492132Hi,
Straight line depreciation depreciates the depreciable amount over the life of the asset. The depreciable amount is the cost less the residual value, and here we are given the residual value of 500, hence the depreciable amount is 3,500 (4,000 – 500).
Thanks
December 19, 2018 at 7:16 am #492290I understood. Thank you so much !
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