- July 20, 2021 at 2:33 pm #628920
How are you, with regard to calculation of the old depreciation before the revaluation we should always take the cost over the life of the asset but why in this question they took the historic cost over the remaining life ,is it okay.
The following trial balance extract relates to Topsy Co as at 30 April 20X6:
Land at cost 800
Valuation at 1 May 20X2 1,500
Accumulated depreciation at 30 April 20X5 90
Revaluation surplus at 30 April 20X5 705
On 1 May 20X2, when the carrying amount of the building was $750,000, it was revalued for the first time to
$1.5m and its remaining useful life at that date was estimated to be 50 years. Topsy Co has correctly
accounted for this revaluation in the above trial balance. However, Topsy Co has not yet charged
depreciation for the year ended 30 April 20X6 or transferred the excess depreciation from the revaluation
surplus to retained earnings at 30 April 20X6.
In February 20X6, the land, but not the building, was independently valued at $950,000. This adjustment has
yet to be made for the year ended 30 April 20X6.
What is the balance on the revaluation surplus of Topsy Co as at 30 April 20X6 after the required
adjustments have been made?
At 30 April 20X5 705,000
Increase in value of land in the year ($900,000 – $750,000) 150,000
Annual transfer to retained earnings
Depreciation based on revalued amount ($1,500,000/50 years) 30,000
Depreciation based on historic cost ($750,000/50 years) (15,000) (15,000)
At 30 April 20X6 840,000July 22, 2021 at 11:47 am #629096
So what is your question here? I can see the question and an answer but nothing else. If you pose a question then I can answer it for you.
ThanksJuly 23, 2021 at 9:29 am #629195
My question is in the top of the page about the way they calculated the old depreciation based on historic cost,
Thanks,July 24, 2021 at 12:46 pm #629312
Sorry, I missed the question. You are correct in your understanding but that is when the life of the asset remains unchanged following the revaluation. In this instance there is a change in the life of the asset where we are now told that there are 50 years remaining, so not only do we calculate the new depreciation on this new life but also the old depreciation too as if there was no revaluation the old depreciation would have been changed regardless to reflect the new life.
ThanksJuly 29, 2021 at 1:32 pm #629784
Thanks,August 1, 2021 at 9:43 am #630010
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