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Asset under IAS 16 is upgraded, which improves the life of the asset.
is the following treatment correct?
New CV = CV at date of upgrade + Cost of Upgrade
New Depreciation = New CV / new remaining life.
My question is:
what happens to the accumulated depreciation till upgradation point?
Maybe it would be clearer if you thought of carrying value as “original cost less accumulated depreciation”
Now when you add the cost of the upgrade you have “(original cost less accumulated depreciation) plus cost of upgrade”
Now, you tell me – what has happened to the depreciation accumulated up to the date of the upgrade?
Ok?
so lets say original cost was 920, accum. dep was 450 at end of X1.
in x2, upgrade takes place of 200. during x2, the depreciation is 119.
—————————y/e——–X1——————X2—-
Cost …………………………… 920,000 ———- 670,000
Accum. Dep …………………. 450,000 ———- 119,000
CV ………………………………470,000 ———- 551,000in x2, the 450 accum dep is gone. when i make t accounts for the cost and accum. dep, the double entry that removes the 450 is as follows:
Dr. Accum dep 450
Cr. cost (orig) 450this entry will zero out accum dep, reset cost to 470 (920-450) and then we can go ahead and do the entry for the upgrade as follows:
Dr Cost 200
Cr Cash 200is this correct?
What’s the matter with a simple Dr TNCA with 200, Credit Cash 200 and leave the accumulated depreciation at 450
That way you now have a net book value of 670 and you can apply your depreciation to the nbv over its remaining estimated useful life. (I can’t work out what rate you are using to get 119!)
the 119 dep figure is correct thats y i did not include how dep is being calculated.
the table i put up is how the answer is shown by bpp.
what threw me off was that the figure of accum. dep dropping from 450 to 119.
but i guess on an upgrade, u simple take the CV and move on and the CV takes care of accum. dep … exactly how u had explained.
i am also guessing the above table is just a way of presentation. in effect, the t account for accum dep will actually be 450+119.
correct?
very sorry that i take more time to absorb…thanks for being patient
No need for apologies! And I agree with your accumulated depreciation explanation
All sorted out!
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