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On 1st April 2004, Shylock’s buildings had a fair value that was $20m higher than their carrying value and a remaining useful life of 20 years. Their residual value was deemed to be nil.
Why is the answer this?
Fair value reserve property ( 20-(20 * 2/20)= 18
Don’t understand the *2/20 part. thanks!
the balance sheet date is 31 march 2006(20*2/20) is the same as $20m/20years*2 years. It’s the additional depreciation for the building which $1m per year. Now, after 2 years, it’s $2m so carrying amount in the revaluation reserves is $20m – $2m = $18m. The $2m is transferred to Retained Earnings through SoCiE.
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$20 being the NEW fair value
the 2/20 represents from then (2004) till now (2006) over the remaining life of 20 years hence: 2/20
depreciation calculation of two years 2/20 * the NEW carrying value
so if depreciation for one year is $1m, then from then till now will be two years and the accumu. deprn. should be $2m which is 20m – 2m = 18m
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