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- June 24, 2022 at 5:27 am #659235
On 1 January 20X8, Barnstorm owned a building which cost $480,000 with a carrying amount of $384,000. On that date the building was valued at $600,000 and Barnstorm wishes to include that valuation in its financial statements. Barnstorm’s accounting policy is to depreciate buildings at the rate of 2% on a straight?line basis and to make the annual transfer of ‘excess depreciation’.
What is the amount of the annual transfer of ‘excess depreciation’ that Barnstorm will
make as a result of the revaluation?Answer,
Annual depreciation charge before revaluation: 2% × $480,000 = $9,600
Years since purchase: $480,000 – $384,000 / $9,600 = 10 years
Total estimated useful life is 50 years, with a remaining estimated useful life of 40 years. Thus
depreciation following revaluation: $600,000 / 40 = $15,000.
Amount of excess depreciation = $15,000 – $9,600 = $5,400.My question is, In the question it’s not mention that this asset life is 50 years. Can you explain, sir?
June 24, 2022 at 9:18 am #659243The depreciation is 2% straight line, and this is the same as straight line over 50 years.
( 100% / 2% = 50 years). - AuthorPosts
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