Minco june 14 part d

This is the question: Minco acquired a property for $4 million and annual depreciation of $300,000 is charged on the straight line basis. At the end of the previous financial year of 31 May 2013, when accumulated depreciation was $1 million, a further amount relating to an impairment loss of $350,000 was recognised, which resulted in the property being valued at its estimated value in use. On 1 October 2013, as a consequence of a proposed move to new premises, the property was classified as held for sale. At the time of classification as held for sale, the fair value less costs to sell was $2.4 million. At the date of the published interim financial statements, 1 December 2013, the property market had improved and the fair value less costs to sell was reassessed at $2.52 million and at the year-end on 31 May 2014 it had improved even further, so that the fair value less costs to sell was $2.95 million. The property was sold on 5 June 2014 for $3 million. 3) it was sold at 3m compare to cv of 2.9 not 2.95 as stated in q why is that i didnt understand this bit. Thanks

@zkaay said: Hi tutor, 1) I didnt understand how did we arrive to 10 years remaining useful life and 2)when to use this method? Thanks

1) The original cost is $4m and depreciation is $300,000 then the estimated useful life is 13.3 years ($4m/$300,000). If accumualted depreciation of $1m has been charged then 3.3 years have elapsed ($1m/$300,000) and 10 years are therefore left. 2) You use this method as there is no other way of calculating the remaining life. It isn't a case of using a particular method, but being able to use the information to work out the figure based on your knowledge of how depreciation is calculated. Thank

@zkaay said: This is the question: Minco acquired a property for $4 million and annual depreciation of $300,000 is charged on the straight line basis. At the end of the previous financial year of 31 May 2013, when accumulated depreciation was $1 million, a further amount relating to an impairment loss of $350,000 was recognised, which resulted in the property being valued at its estimated value in use. On 1 October 2013, as a consequence of a proposed move to new premises, the property was classified as held for sale. At the time of classification as held for sale, the fair value less costs to sell was $2.4 million. At the date of the published interim financial statements, 1 December 2013, the property market had improved and the fair value less costs to sell was reassessed at $2.52 million and at the year-end on 31 May 2014 it had improved even further, so that the fair value less costs to sell was $2.95 million. The property was sold on 5 June 2014 for $3 million. 3) it was sold at 3m compare to cv of 2.9 not 2.95 as stated in q why is that i didnt understand this bit. Thanks

Hi, This is slightly similar to your earlier one about impairments and revaluations. We cannot revalue the asset above what it would have been carried at if we'd not done the impairment. So here it would have been at $2.9 million and hence we cannot increase it any further. Thanks