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Greetings, sir,
8.19 Banter Co purchased an office building on 1 January 20X1. The building cost was $1,600,000 and this
was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual
value. The building was re-valued to $2,250,000 on 1 January 20X6. The useful life was not revised.
The company’s financial year ends on 31 December.
What is the balance on the revaluation surplus at 31 December 20X6?
A $650,000
B $792,000
C $797,000
D $810,000answer
In the 5 years to 31 December 20X5, accumulated depreciation on the building is $1,600,000 x 2% x 5 years = $160,000.
please sir,
why didnt they calculate the depreciation as 1,600,000 x 0.2 x 5 years divide by 50 years (useful life)
why did the omit the useful life?
many thanks
finnick
Depreciating at the rate of 2% straight line is another way of saying to depreciate over a life of 50 years. 1/50 is equal to 2%.
Do watch my free lectures on this because I do explain this point.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
(Incidentally, you have headed up this post as ‘intangible assets’, but an office building is a tangible asset – not intangible! 🙂 )
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