- February 9, 2022 at 9:49 pm #648401vikipulkaMember
- Topics: 21
- Replies: 21
20X5: PPE machine cost 8,156, a useful life 12 years and a residual value $2,000
Xavier has a policy of keeping all equipment at revalued amounts. No revaluations had been necessary until 30 September 20X8 when one of the major supplier of such machine went bankrupt causing a rise in prices. A specific market value for Xavier’s machine was not available, but an equivalent brand new machine would now cost $15,200.
Xavier treats revaluation surpluses as being realised through use of the asset and transfers them to RE over the life of the asset. The remaining useful life and residual value of the machine remained the same
YE 30 September 20X8
What is the CA of the PPE at 30 Sept 20X8
A: 15,200-(15,200-2000)*4/12 = 10,800
I don’t get it, why they decided to recalculate the depreciation using new revalued amount for all previous years? Per my understanding, the CA should be = reval amount 15,200
Because they’ve should’ve been done the following:
Dr Carrying amount Cr OCI (reval surplus) XX
So the carrying amount will become 15,200 at 30 September 20X8
Then reverse all acc depreciation Dr Acc depreciation Dr Cost Cr OCI (reval surplus)
Then realise extra depreciation Dr OCI (reval) Cr RE
And then for the next 8 years (! the remaining, not 12 years), the should charge a depreciationFebruary 20, 2022 at 9:31 am #648953P2-D2Keymaster
- Topics: 4
- Replies: 6443
This is the revaluation of a specialist asset where there is no fair value out there and we have to use the depreciated replacement cost to calculate the amount to revalue to.
This involves looking at the current replacement cost and depreciating it from the date of purchase to the date the revaluation takes place (30 Sept X8), in effect giving a value of the asset as if we had purchased it four years ago at its current replacement cost.
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