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The video calculates the Reserves as $500,000 ($6m – $5.5m). I would have thought depreciation on the building would need to be taken into account to obtain the carrying value for L&B as at 01/07/X7 before calculating the reserves. I have calculated depreciation to be $500,000 ($5m * 5/50yrs) and therefore the CV of L&B to be $5m ($5m + $500k – $500k). With the FV of L&B as at 01/07/X7 shown as $6m ($600k + $5.4m), then deducting CV of $5m – I have calculated the Reserves to be $1m for L&B. Please can you confirm if this is correct.
Yes, I think this is correct as there is a slight mistake in the video but the answer in the class notes is correct.