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Buildings are depreciated at 5% of the cost. On 31 May 2017 the buildings were professionally valued at $2,649,000 and the directors wish this valuation to be incorporated into the accounts.(Calculate depreciation at original cost and show revalued amount in the SOFP).
Building depreciation cost – 1,940,000(at cost) * 5% = 97,000
Accumulated depreciation of building – 468,000I don’t know the next step for this question.
I’m not sure what the question is.
Your calculation of depreciation seems OK (assuming 1,940,000 was the original cost.
The revalued building would be shown as 2,649,000 less 5% depreciation.
Building at cost – 1,940,000
Accumulated depreciation – 468,000
Carrying amount – 1,472,000Depreciation expense – 97,000
Revalued amount – 2,649,000DR Building (2,649,000-97,000) 2,552,000
CR Revaluation surplus? 2,552,000how will this entry will be written in SOFP?
Initially, before any depreciation is put through, the building will be shown in the SOFP at its cost less accumulated depreciation. If the building is revalued in the year at its revalued amount is substituted for cost and the accumulated depreciation is reduced to zero.
Any adjustments needed are posted to the revaluation reserve.
Once revalued, the revalued amount is to depreciated over the estimated remaining useful life of the business.
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