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Cost Model

This topic has 1 reply, 2 voices, and was last updated 4 years ago by P2-D2.

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August 21, 2021 at 4:42 pm #632434
chelleyness
Participant
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Hi. Referring to Q1 of March/June 2021 PYQ, how does the cost model affect retained earnings?
From the answer, “– Retained earnings would increase by $1,000,000 to $3,600,000.”
Could you please explain how does this come about? Thankyou!
August 29, 2021 at 10:55 am #633346
P2-D2
Keymaster
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Hi,
Under the cost model the property would not have been revalued to $30m and so the higher depreciation of $1m ($30m/30 years) would not have been charged. If it was not charged then the profits and therefore retained earnings ill both be higher.
Thanks
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