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Dear Mike,
Would you please kindly advise, in the answer to Q1, where numbers “1,000 (CR S of Comp Inc)” and “70,000 (DR Finance costs 10%*70,000) are from?
In the second paragraph down the TB extracts, there is a 7% increase in value, but it seems this info is not used in the answer.
Thank you!
The revaluation increase is 35,000. The remaining life of the building is 35 years. That equates to 1,000 additional depreciation each year which is going to be charged through the Statement of Income. It is good practice to “compensate” the Retained Earnings by an annual transfer from the Revaluation Reserve equating to the “additional depreciation”. That explains the 1,000.
The new leased asset which had a fair value of 92,000 was purchased and a deposit / instalment of 22,000 was paid at the start of the contract. The effect of of that payment is that we were only borrowing 70 ( ie 92 – 22 ) from the finance lessor. He, in turn, was charging us 10% finance lease interest and 10% of 70,000 explains the 7,000 in your question.
You’re correct about the investment property 7% increase it isn’t used – I need to remove that sentence from the question. Thanks for pointing it out
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enlightened! Thank you very much!
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