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It looks easy and it might be ! my confusion is co’s policy is to dep on cost. now when the asset is revalued, will it conitnue to depreciate on cost or the new value would be divided by no of yrs left ?
Q4 Sail Shipping plc
Sail Shipping plc owns four ships. These are specialist vessels that are presently shown at cost less depreciation. The company’s policy is to depreciate ships at 5% of the cost each year. Sail Shipping plc had each of the four ships revalued on 1 January 2007. The following table shows the result of that exercise.
Ship Original cost Accumulated depreciation at 1.1.2007 Valuation on 1.1.2007 Estimated useful life from 1.1.2007
A £20m £7m £15m 10 years
B £30m £3m £29m 20 years
C £18m £9.9m £6m 4 years
D £25m £5m £19m 18 yearsRequired:
(a) Calculate the book value of ships as at 31 December 2007 and the depreciation charge for ships for the year using the following bases:(i) historical cost (ii) revaluation
Historic cost base is “original cost less accumulated depreciation / estimated remaining useful life” So your first ship would be ( 20 -7 ) / 10
under valuation model, the revalued amount is divided by remaining estimated useful life so, again for your first ship, that would be 15 / 10
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