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Please explain this question. I didn’t understand solution in the book.Thanks in advance
At 31 December 20X3 Q, a limited liability company, owned a building that had cost $800,000 on 1 January 20W4.
It was being depreciated at 2% per year.
On 31 December 20X3 a revaluation to $1,000,000 was recognised. At this date the building had a
remaining useful life of 40 years.
What is the balance on the revaluation surplus at 31 December 20X3 and the depreciation charge in the statement of profit or loss for the year ended 31 December 20X4?Depreciation charge for year ended 31 December 20X4
and
Revaluation surplus as at 31 December 20X3A 25,000 200,000
B 25,000 360,000
C 20,000 200,000
D 20,000 360,000At the date of the revaluation the building had been owned for 10 years.
Therefore the carrying value/NBV would be 800,000 – (10 x 2% x 800,000) = 640,000.
It was then revalued at 1,000,000 and so the revaluation surplus = 1,000,000 – 640,000 = 360,000.The depreciation for the year to 31 December X4 is then calculated on the revalued amount of 1,000,000 and is therefore 1,000,000/40 = 25,000
Have you watched my free lectures on this? The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Hi John!!
I don’t understand where does it says they had building 10y prior?
ThanksThere are two ways of finding that it had been owned for 10 years.
One is that from 31 Dec 20X3 to 31 Dec 20W4 is 10 years.
The other is that the building was being depreciated at 2% a year, which means that the useful life when it was bought was 50 years (100%/2% = 50). It now has only 40 years useful life remaining so 10 years have past.
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