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Hi Mike
In june 15 it states
“The auditor should also consider the impact of the accounting treatment on depreciation, as this should now be recalculated
based on the higher carrying value of the asset and the shorter useful life of 20 years. If an adjustment is not made to
depreciate the property complex from the date of the sale and leaseback transaction based on the new, higher depreciation
charge, then operating expenses will be understated.”However in June 13 it states in the BPP answer book
“depreciation should also be charged over 20 yrs. The amount recognised in this period, however, will be on the old carrying value of £27m.”
My question is which carrying value should be used. Old or new
Im assuming BPP made a mistake on June 13 answer as its completely different to the one online. i have included the links below.
Thanks
June 15
June 13
No matter that you have given me the link for the first example (and the name (Clean?)) I can’t find the question in that exam
However, I have a sneaky feeling that the difference could be because of the date of the revaluation / sale and lease back
If the asset is sold and leased back on the last day of the financial year, then depreciation for that year just ended should be calculated on the original cost.
Next year, of course, it will be based on the lower of fair value and present value of minimum lease payments
In the second question link that you gave me the sale / leaseback took place on the last day of the year
Check the first link again please and see if, as I suspect, the sale / revaluation is on the first day of the accounting period in which case depreciation will be calculated on the revised figure
Does that make sense to you?
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