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Hi John,
can you help me, please, with the following problem?
On 01.01.20×8 Baker Co revalued itd property to 100000 $. At that date the asset was accounted for at a cost of 80000 $ and had accumulated depreciation 20000 $. The property had an usefull life of 50 years from the date of purchase and nil residual value.What if the amounts of excess depreciation transfer required from revaluation surplus to retained earnings at 31.12.20×8.
Thank you,
Camelia
The original depreciation cost was 80,000/50 = 1,600 per year.
Since the accumulated depreciation was 20,000 it must be that they had owned it for 20,000/1,600 = 12.5 years.
Therefore when it was revalued, the useful life left must be 50 – 12.5 – 37.5 years.
So the new depreciation after revaluing is 100,000/37.5 = 2,667 per year.
So the excess depreciation is 667. This may be transferred from revaluation surplus to retained earnings (but it is not a requirement – it is the choice of the company).
HOW WOULD THE COST OF DEPRECIATION EXPENSE IN THE CURRENT YEAR BE REPORTED ON THE BALANCE SHEET
Please do not type in capitals in future – it is bad manners 🙂
Good heavens!!
Expenses appear in the Statement of profit or loss – not in the Statement of financial position (we stopped calling it the Balance Sheet years ago!).
On the SOFP we show the accumulated deprecation as subtracted from the cost of the asset in order to show the carrying value (or net book value).
I really do suggest that you watch our free lectures – they are a complete course for Paper F3 and cover everything you need to be able to pass the exam well.
Hi John,
I am sorry if I come back with the question. But the difference between 2667 and 1600 is 1067. Did I miss some point in the solution?
Thank you,
Camelia
Hi Sir,
I’m getting confused with a BBP question (Q 7.8)
A motor car was purchased for $20,000.. Depreciation charge to be 20% per year straight line basis, residual value after 5 years = $4,000.
In the answers they calculated the depreciation by multiply the yearly percentage to ‘Cost less disposal value’ i.e: 20% x (20000-4000).
Is that correct?
Until now I’ve been calculating depreciation charge on cost only for straight line (whether or not there’s a disposal value if % is given) … I would have done 20% x 20,000..However in the end I still got the same answer..
But would you advice me to keep calculating depreciation from cost only?Thanking you in advanced 🙂
The BPP answer is correct.
20% straight line means the same as straight-line over 5 years (100%/20%)
Similarly 10% straight line means the same as straight-line over 10 years (100%/10%).
If the question had actually said straight line over 5 years then I think you would have done it the way that BPP have 🙂(It is unusual to give straight line as a % and at the same time have a residual value, but if it does happen then again BPP are correct)
Ok Sir. Thank you for the reply.
but they didn’t use the 5 years to calculate the answer.
And normally when the percentage is given, we never had to calculate yearly depreciation by subtracting disposal value from cost first and then multiply by the %.Like in this case, the depreciation per year = 3200..
therefore the depreciation % = ‘depreciation charge per yer’ / ‘cost’ x 100 = 3,200 / 20,000 % = 16% right?Because 16% x 20,000 = 3200 the yearly depreciation..
Its the 20% that’s bugging me. because in all other questions we use the percentage given and multiply directly by the cost. Not ‘cost – disposal value’.
Yes, they have used 5 years. (20,000 – 4,000) / 5 is exactly the same as 20% x (20,000 – 4,000).
Usually when it is given as a % and is straight line, you are not told a disposal value and therefore it is simply a % of the original cost.
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