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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!
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.