- May 27, 2020 at 11:01 am
I need to Thank you for your availability to take the time to clarify our gaps (my gaps).
Please, a question related to this example. Someone else has previously (2 years ago) already responded to this question but not given the right answer, I guess.
So, when we recognize the asset at the first step we DR “right of use asset” and CR Liability with the PV:
DR Asset 22,730
CR Liability 22,730
After, when we make works, in amortizing liability everything seems Ok since we are working on the opening value of the liability (22,730 figure above).
But, when we calculate the depreciation we make the adjustment with +1000-500 and have the figure (23,230) over which would be the final figure for annual depreciation, which is 4,646.
Here come what makes me a little confused,
When we deduct this figure (4,646) to obtain the carrying value from the value of asset already recognize in the first step of the beginning (Dr & CR above), we don’t subtract this amount of depreciation from 22,730 (which is the first recognition) but we subtract this 4,646 from the amount 23,230 to obtain the carrying value of 18,584 for the first year.
Question: the figure for the first booking should be 22,730 or 23,230? Or something else is escaping from me ?!?!
The beauty of my confusion, if the asset is recognized in the first step by DR “right of use” with the amount of 22,730, how can it be possible to obtain “NIL” at the end of the period when we subtract the depreciation 4,646 from the figure 23,230 and reach the CV of 18,584 at 1 year-end and so on til “NIL” at the end of total period ?!?!?!
If, in the first step of recognizing the figure of “right use of asset” should be DR 23,230 (like mentioned in the lesson at SPF ” right of use” an subtract the depreciation 4,646 to reach the CV 18,584) then the figure of CR Liability should be 23,230 to balance the amount in the first double entry, but workings in amortizing the liability are “NIL” at the end of period by using the first figure booked for liability which is 22,730.
So, at this point what makes me confused is the first double entry done at the beginning by:
DR Asset with 22,730 (which I guess should be, according to workings 23,230 since we subtract the depreciation of 4,646 from this figure and have the Carrying Value at the 1 year-end of 18,584 and “NIL” by the end of the total period that we held this asset),
CR Liability 22,730 (Which is Ok respecting the IFRS requisitions but don’t match the figure of first DR entry since it should be 23,230 since we had calculated the amount of Asset and subtract the depreciation from this figure).
I guess something is missing me and is giving me a lot of headaches (Guess you were right at the begging of the lesson regarding this 🙂 )
Your help is very appreciated.
Once again, thank you a lot in advance for your time and comprehension.May 28, 2020 at 10:15 pm
The first step in recognition:
DR right of use asset 22,730
CR Liability 22,730
DR Right of use asset 500 =>(1000 – 500)
CR CASH 500 =>(what we have paid)May 29, 2020 at 9:00 pm
I think I took a short cut. You could, if you wish, recognise the 1,000 and 500 as part of the liability when you capitalise the asset. Then when the payment is made, you can reduce the value of the liability by these amounts. I think it is quicker and easier to take the amounts straight to the right of use asset and cash.
Hope that help. Let me know if I’ve missed something in your question.
ThanksJune 1, 2020 at 1:05 pm
You’re right, is easy and quick to put the amount straight to the use of right, but just at the beginning, the difference makes me a little bit confused. Now, everything is clear.
Thank you a lot for your time.
DenisJune 4, 2020 at 10:47 am
No worries, you’re welcome and keep up the hard work!
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