- This topic has 5 replies, 2 voices, and was last updated 2 years ago by
.
- Posts
Hi, may I know why this question requires us to find the useful life when the depreciation of 2% is given. Thank you 🙂
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?the answer states that we have to find the remaining useful life then multiply by the new revalued valuation. however, for the old assets ($500,000) depreciation is calculated by using 2% given.
My doubt is why do we find the remaining useful life when calculating depreciation for revalued assets
Thank you so much
As I do explain in my free lectures, straight line depreciation at 2% is the same as depreciating straight line over 50 years. (50 years at 2% a year depreciates the asset to zero).
After revaluing we will continue to use straight line depreciation but instead of depreciating over 50 years we depreciate straight line over the remaining life of the asset.
Hi, thank you so much for the reply.
Does that mean that when we use 2% and over 50 years, we should be getting the same answer
however the answer that I get for after revaluation = 600,000*0.2=$12,000
when i use remaining useful life, i get 600,000/40=$15,000Thank you
2% straight line is the same as saying straight line depreciation over an expected life of 50 years.
After the revaluation the expected remaining life is no longer 50 years – it is only 40 years. Therefore we depreciation over 40 years (which would be the same as 2.5% straight line depreciation).
Again, have you watched my free lectures on this?
Hi, thank you sir. I have watched the lectures but might have missed this. will be reviewing the lectures again. Thank you so much for your time
- The topic ‘depreciation on revalued assets’ is closed to new replies.