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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?
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?
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
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?
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
Thanks a ton sir!! I don’t know what I would have done without opentuition! Thank you 🙂
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