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10. Tibet acquired a new office building on 1 October 20X4. Its initial carrying amount consisted
of:
$000
Land 2,000
Building structure 10,000
Air conditioning system 4,000
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16,000
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The estimated lives of the building structure and air conditioning system are 25 years and 10
years respectively.
When the air conditioning system is due for replacement, it is estimated that the old system
will be dismantled and sold for $500,000.
Depreciation is time?apportioned where appropriate.ANSWERS
A
Six months’ depreciation is required on the building structure and air conditioning system.
$000
Land (not depreciated) 2,000
Building structure (10,000 – (10,000/25 × 6/12)) 9,800
Air conditioning system (4,000 – (3,500/10 × 6/12)) 3,825
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15,625
Goodday, Pls i don’t understand why the 3500 was used to calculate the depreciation. Why was the fair value of 500 deducted from the carrying value? I’ll appreciate if you can explain.Hi,
Yes, the cost of the air conditioning unit is 4,000 but it can be sold at the end of its useful life for 500, hence the depreciable amount is 3,500 (4,000 – 500). The depreciable amount is then spread over the life of the asset.
Thanks
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