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The following trial balance extract relates to a property which is owned by Veeton as at
1 April 20X4.
Dr Cr
$000 $000
Property at cost (20 year original life) 12,000
Accumulated depreciation as at 1 April 20X4 3,600
On 1 October 20X4, 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 20X5?
SOLUTION: Six months’ depreciation to the date of the revaluation will be $300,000 (12,000/20 years × 6 /12). Six months’ depreciation from the date of revaluation to 31 March 20X5 would be $400,000 (10,800/13.5 years remaining life × 6 /12). Total depreciation is $700,000.Sir, I dont understand how we can find 13,5 years or where we found 6.5 years for calculation?
The 0.5 years comes from the period 1 April X4 to 1 October X4, which is six months.
The rest of the figure comes from using the original life of the asset of 20 years and its cost of 12,000 alongside the accumulated depreciation to 1 April X4. The annual depreciation charge is 12,000/20 = 600. There will have been six years of depreciation charged if the accumulated depreciation is 3,600 (3,600/600). So, there have been 6.5 years since the date the asses was acquired and if the total life is 20 years there are 13.5 years left (20 – 6.5).
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