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Dear Sir,
Please can you clarify the below:
Part (b) I get accounting for the substance over form and not the legal form. But when referring to the ‘legal form of a lease’, what would that be? Not actually owning the asset?
Part (d) I don’t understand why accumulated depreciation of 504 has been calculated on the library when the idea to replace the school with the library was decided on 30 Nov X6?
Thanks for your clarification!
Justine
Hi,
The legal form of the lease is no ownership and therefore just lease rentals.
We need to impair the current value of the building down to the value of the library. To do so we need to work out the depreciated replacement cost of the library as that is what it would be valued at once the change to a library has taken place.
The building has been in use for 6 out of the 25 year life so we apply the same proportion to the cost of the library, and then impair the building to this value.
Thanks
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