NCA revaluation – depreciation

Hi John, Hope you are doing well.

I have a question if you’d have time to take a look at please.

On 1 January 20X8, Wootton has a building in its books which cost $380,000 with a carrying amount of $260,000. On 1 July 20X8, the asset was valued at $450,000 and Wootton wishes to include that valuation in its books. Wootton’s accounting policy is to depreciate buildings at the rate of 3% on a straight-line basis.

What was depreciation charge included in the statement of profit or loss for the year ended 31 December 20X8?

Answer:

I can see that the useful life of the asset is 33.3 years and the depreciation calculation for the first six months up to the date of the revaluation is $380,000 x 6/12 x 0.03 = $5,700

So, the accumulated depreciation as at 30th June is $125,700 (120,000 + 5,700) and this equals to 11.03 years

This would mean that there is 22.3 years left on its useful life (33.3 – 11.03)

Where I get confused is the depreciation for the second six months. i.e July to Dec x8

At this point – our asset is $450,000 with 22.3 years useful life left. So, the depreciation will be based on the revalued amount and the useful life and the straight line % given in the question is no longer valid. Is that correct?

so the correct depreciation is $450,000 / 22.3 x 6/12 = $10,090 as opposed to $450,000 x 3% x 6/12 = $6750

And the total depreciation expense for the year is $5700 + 10,090 = $15,790

Please could you advise?

Many thanks as always
Regards
Mia