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Question 10 from Kaplan revision book.
Tibet acquired a new office building on 1 Oct 20×4. Its initial carrying amount consisted of:
$000
Land 2,000
Building structure 10,000
Air conditioning system 4,0000
Total 16,000The estimated lives of the building structure and air conditioning system are 25yrs and 10 years respectively.
When the air conditioning system is due for replacement, its estimated that the old system will be dismantled and sold for $500,000
Depreciation is time-apportioned.
Solution
$
Land 2,000
Building 10,000 – ( 10000/25×6/12) = 9800
Air conditioning 4000 – ( 4000/10*6/12) =3800But the answer in the book for air conditioning is 3825.
I do not understand what treatment was used for dismantled cost of £500,000.
Please explain the cost for air conditioning?
Hi,
You have ignored the residual value in your calculation of the depreciation. The $500,000 is the residual value and needs to be deducted from the cost to find the depreciable amount. The calculation is therefore as follows:
Depreciation = (4,000 – 500)/10 x 6/12 = 175
CV = 4,000 – 175
Hope this clears it up for you.
Thanks
Chris
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