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Dear Sir,
My question is regarding Dec 2010 Question 2. (Cavern)
I wanted to know why did we depreciate the building and the new pollution causing plant at the beginning of the year.
1. The building had useful life of 18 years at the beginning of the year (1 Oct 2009) why didn’t we depreciate it over 17 years instead at the end of 30 Sep 2010. We instead depreciated at the beginning of the year when useful life was 18 years and then revalues it at the end of the year.
2. Like wise the new plant and provision at the beginning of the year was 10000+4000. why didn’t we let the provision get unwound for the year to 4400 and then Depriciated the whole amount of 14400 @ 12.5%.
In the SFP we had to increase the provision to 4400 and expense 400 as finance cost.Your clarification would be much appreciated.
The figure in the trial balance is at the start of the year (it has just been revalued at the end of the previous financial year)
We now use that land and buildings (that had an 18 year life at the start of the year) and we should depreciate the building to represent its use throughout the year ended 30 September, 2016
That’s why we take 1/18 th of the revaluation figure as at the start of the year
With reference to the decontamination costs, these should have been added into the asset value as on date of acquisition 1 October, 2015
So, at the start of the financial year that we are looking at, the asset should be shown as $14 million and that’s the figure that we should depreciate over 10 years
I’m not sure what’s meant to be happening with your $4,400 but the correct treatment is to capitalize those decontamination costs and depreciate along with the plant over the plant’s estimated useful life
Any adjustments to those estimated decontamination costs will go through the statement of profit or loss as those adjustments are identified as being necessary
OK?
Sorry Sir did you mean Sep 2010/Oct 2009 respectively?
Quoting from your answer-
“We now use that land and buildings (that had an 18 year life at the start of the year) and we should depreciate the building to represent its use throughout the year ended 30 September, 2016That’s why we take 1/18 th of the revaluation figure as at the start of the year
With reference to the decontamination costs, these should have been added into the asset value as on date of acquisition 1 October, 2015”
Thanks
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