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During the year ended 31 March 2013 X sold a property for € 1,550,000. The property was purchased on 1 July 2000 for €100,000 but had been revalued to €1,900,000 on 31 March 2010. X depreciates its properties buildings on a straight line basis over the life of the lease, with a full year’s depreciation in the year of acquisition and none in the year of disposal.
X revalues another property to €2,000,000 on 31 March 2013. Its historical cost was €1,000,000 and accumulated depreciation on the property was €350,000. How are these transactions reflected in other comprehensive income and profit or loss?
Other comprehensive income. Profit or loss
A. €1,350,000 gain €1,510,000 profit
B €500,000 loss €1,510,000 profit
C €1,350,000 gain €30,000 profit
D €500,000 loss €30,000 profitSir, im experiencing difficulty in solving the first property since the useful life of the asset which is needed to get the carrying amount is not stated .
Your guidance on this will be greatly appreciated.
Regards,
Jamal
It doesn’t say so in the question but I’m guessing that the useful life of the first property was a further 20 years after the revaluation on 31 March, 2010
Work on that as a premise and see whether you can come up with one of the options available
The correct answer is C. Where the carrying amount of €1,900,000 is multiplied by 8/10 and lessed from the disposal amount of €1,550,000 in order to get the profit on disposal of €30,000.Im trying to get the logic behind this and I’m not getting it.
I suggested in my last post that two years had passed since the asset was revalued
I also suggested a remaining life of 20 years
I’m going to revise that now to just 10 years – my fault – my mental arithmetic is not what it used to be
That’s 2 years out of 10 years
Over 10 years $1,900,000 will be depreciated at the rate of $190,000 so 2 years’ worth is $380,000
Deduct that from $1,900,000 and you have a carrying value at date of disposal of just $1,520,000
Sold for $1550,000 … profit on disposal of $30,000
That should be clearer now – sorry for the earlier miscalculation 🙁
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