- This topic has 9 replies, 2 voices, and was last updated 5 years ago by
MikeLittle.
MikeLittle.-
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hemraj123
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Dear sir,
If the asset would have an estimated residual value, will it be shown in financial statements?
If so, then how?
MikeLittle
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No, and therefore your supplementary question is not applicable
hemraj123
- Topics: 110
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Thank you sir 🙂
MikeLittle
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You’re welcome
hemraj123
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Sir, could you please explain the following question?
The company’s building was acquired on 1 January 2002 for $2,000,000. It had an expected useful life of 40 years with no residual value. On 31 December 2005, it was revalued at $2,160,000. It was disposed of for $1,720,000 on 31 December 2006.
Prepare journal entries
I’m having trouble understanding the depreciation part of this question.
Would it be 2,000,000 / 40 = 50,000 for 4 years(2002-2005) and then 2,160,000 / 36 = 60,000 for 2006?
MikeLittle
- Topics: 26
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That’s exactly right … where do you think that you’re having trouble understanding that calculation?
And there’s a credit into the revaluation reserve on 31 December, 2005 of $360,000 followed on 31 December, 2006 by the removal of that credit to set off against the loss of $380,000
OK?
Incidentally, it appears that the directors MAY be guilty of a little bit of manipulation here! If the building had NOT been revalued on 31 December, 2005 and had been sold on 31 December, 2006 for $1,720,000 there would have been a loss on disposal to be accounted for of $30,000 in the year to 31 December, 2006
hemraj123
- Topics: 110
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So the journal entry for this would be
Dr Revaluation surplus 360,000
Dr Loss on disposal 20,000
Dr Cash 1,720,000
Dr Accumulated depreciation 60,000
Cr Asset 2,160,000Is this right?
MikeLittle
- Topics: 26
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Yes, that works
It would be more “normal” to have 2 or 3 separate less convoluted journals rather than a single composite masterpiece, but, as I said, it works
hemraj123
- Topics: 110
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Thanks a ton sir!! I don’t know what I would have done without opentuition! Thank you 🙂
MikeLittle
- Topics: 26
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You’re welcome
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