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Banter Co purchased an office building on 1 January 20X1. The building cost was $1,600,000 and this
was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual
value. The building was re-valued to $2,250,000 on 1 January 20X6. The useful life was not revised.
The company’s financial year ends on 31 December.Dear Sir,
shouldn’t this be 0.02*1,600,000/50 years? and then * 5 years?
the book’s answer says in the 5years to 31 December 20X5, accumulated depreciation on the building is
$1,600,000* 2% * 5 years = $160,000.don’t we need to divide the useful life if they state it in percentage ?
thanks 🙂
The answer in the book is correct.
As I explain in my free lectures, straight line depreciation at 2% is the same as straight line over a useful life of 100/2 = 50 years.
(2% x 1,600,000 = 32,000 depreciation per year
1,600,000 / 50 = 32,000 depreciation per year)Do watch my free lectures. They are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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