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Hello Sir,
For PYQ June 2014
Q3 part (a)
The answer for profit before loan int and tax margin by excluding Shaw, why the 18000 – 5000?where is the 5000 comes from? As Shaw have no int or tax information provided
Thank you.Hi,
The 5,000 is the profit before interest and tax of Shaw that has been calculated from part (ii). Shaw has gross profit of 9,000 and operating costs of 2,000 and 2,000, hence a profit before interest and tax of 5,000.
Hope that clears it up, let me know if it doesn’t.
Thanks
Hi Sir, Thank you for your explanation ,its clear now.
But I have another question related to same PYQ June 2014
Q4b
“Note: Delta makes an annual transfer from its revaluation surplus to retained earnings in respect of excess
depreciation.”
The answer for the excess depreciation transfer from RR to RE is $6400
but according to textbook(kaplan) the “An annual reserves transfer may be made, from revaluation surplus to retained earnings, for the additional depreciation charged on the revalued amount compared to cost.”The additional dep charged for the Item B will be $2400 rather than $6400
as the original annual dep is $20,000(accumulated dep total is $40,000 for 2 years) and the new dep charge for Item B based on new revaluation amount on 1 April 2012 will be $22400 which therefore its exceed $2400?Thank you.
Hi,
It is a tricky one but the answer is right and it is a situation that we don’t see that often. Here as well as there being an increase in the value of the property, there is also a change in the estimated life. The asset originally had a life of six years, and now after two years there are five years left, and so a life of seven years in total.
So due to the change in estimate of the life the “old” depreciation charge would have been $16,000 (80,000/5) if we had not revalued and when compared to the new charge of $22,400 gives the $6,400 in the answer. Very tough!
Thanks
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