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At DOA, FV of S’s freehold property was considered to be $400,000 greater than its value in SOFP. S acquired the property ten years ago and the building element ( comprising 50% of total value ) is depreciated on cost over 50 years.
The answer given states that the carrying amount of building is 170 ( 200 x 34/40 ) , depreciation is 30. How to get that?
Hi,
The fair value of the building is $200,000 (50% x $400,000) which is then depreciated over its remaining life of 40 years (50 years original life and purchased 10 years ago). This gives additional depreciation of $5,000 per annum ($200,000/40 years). Presumably the date of acquisition was 6 years ago and so the depreciation is $30,000 ($5,000 x 6 years).
Hope this helps.
Thanks
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