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kaplan (exam kit) question no 125
On 1 January 20X8, Wootton had a building in its books which cost $500,000 with a carrying
amount of $405,000. On 1 July 20X8, the asset was valued at $600,000 and Wootton wishes
to include that valuation in its books. Wootton’s accounting policy is to depreciate buildings
at the rate of 2% on a straight?line basis.
What was depreciation charge included in the statement of profit or loss for the year ended
31 December 20X8?– my working
building 500000×6/12×2/100=5000
sir ,carrying amount is cost less depreciation and any impairment losses
so if depreciation is 5000 then how carrying amount is 405000which mean cost-carrying amount = 500000-405000=95000
1 july asset= 600000×6/12×2/100=6000
so depreciation charged = 5000+6000=11000
after that what should i do, till here is my working is correct ?but answer is 12500
2% straight line depreciation means that when it was originally bought they were assuming a life of 100%/2% = 50 years.
They had been depreciation at the rate of 2% x 500,000 = 10,000 per year, and given that at on 1 January the carrying value was 405,000 it means they must have already charged depreciation of 95,000 and must therefore have owned it for 95,000/10,000 = 9.5 years.
For the first half of the current year the depreciation will be 6/12 x 2% x 500,000 = 5,000.
The revaluation occurs 6 months into the year and so by then they will have owned it for 9.5 + 0.5 = 10 years. So there are now 50 – 10 = 40 years life remaining.
So the depreciation for the second half of the year is 6/12 x 600,000/40 = 7,500.
So the total depreciation for the year is 5,000 + 7,500 = 12,500.
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