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The following trial balance extract relates to a property which is owned by Veeton as at 1 April 2014:
Dr Cr $’000 $’000 Property at cost (20 year original life)12,000
Accumulated depreciation as at 1 April 2014 3,600On 1 October 2014, following a sustained increase in property prices, Veeton revalued its property to $10·8 million.
What will be the depreciation charge in Veeton’s statement of profit or loss for the year ended 31 March 2015?
A $540,000 B $570,000 C $700,000 D $800,000sir I did not understand the solution :
Six months’ depreciation to the date of the revaluation will be $300,000 (12,000/20 years x 6/12);
”six months’ depreciation from the date of revaluation to 31 March 2015 would be $400,000 (10,800/13·5 years remaining life x 6/12)”.
sir i did not understand this 2nd one calculation.
How is 13.5 yearsHi,
You have to work out how many years of depreciation have already been charged based upon the accumulated depreciation of $3,600.
One year worth of depreciation is $12,000/20 years = $600.
As $3,600 has been accumulated then 6 years of depreciation must have been charged ($3,600/$600), and hence 14 years remaining at the start of the financial year.
As the asset is revalued after 6 months of the financial year then there will be a remaining useful life of 13 years and 6 months (i.e. 13.5 years).
Hope that helps.
Thanks
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