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A company revalued its land n building at the start of the year to 10 m(4m for land)The property cost 5 m(1m for land) ten year prior to the revaluation.total expected useful life is 50 year.
MY question is 1 what is the concept behind this calculation
if i separate 5m -1m = 4m and than *10/50 = 4000
but in book answer it should be 5m – 4m*10/50= 4200MY 2nd Question is ([/b]why we don’t separate land of 4 million from 10 m when we r valuing an asset )
according to the solution it should be like
Land n building 4200
Revaluation (Difference ) 5800
Valuation 10000
new dep 6m/40 (150)
9850According to my concept(as i know i m wrong but ) it should be
land n building 4200
Revaluation (10m -4m land) (6000)
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land n building is revalued be 1800Ok, forget the land for a second. The building cost, 10 years ago, 4,000. It has been depreciated by 10 / 50 ie by 800, so has a carrying value of 3,200. Land is not depreciated – what’s its estimated useful life ? You’ll be long gone before the land!
So, at the start of the year, we revalue the building to 6,000 and then depreciate it for this year by 1 / 40 * 6,000 = 150. The building is therefore now carried at 6,000 – 150 = 5,850
Plus the land at a value of 4,000 gives a total carrying value of 9,850
The double entry for the building revaluation is Dr Building accumulated depreciation account 800, Dr Building account 2000, Cr Revaluation reserve account 2,800
That leaves the Building account at 6,000, the Building accumulated depreciation account at zero and the Revaluation reserve account at 2,800
The land? It had a debit balance of 1,000 on acquisition. It has not been depreciated in the last 10 years. It has, at the start of the
this year, been revalued to 4,000. The double entry is, at the start of this year, Dr Land account 3,000 Cr Revaluation reserve account 3,000At the year end, we have assets of 6,000 ( Building ) + 4,000 ( Land ) – 150 ( Building depreciation ) = 9,850 on the Statement of Financial Position and a credit balance on the Revaluation reserve account of 5,800
Is that clear?
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thats great answer
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