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A business purchased an asset on 1 january 20X1 at a cost of $160000.The asset had an expected life of 8 years and a residual value of 40000. The straight line method is used to measure depreciation. The financial year ends on 31 December.
At 31 december 20X3, the estimated remaining life of the asset from that date is now expected to be only 3 years, but the residual value is unchanged.
What will be the book value of the asset as at 31 december 20X3, for inclusion in the statement of financial position?
A.97500
B.100000
C.107500
D. 115000Please do not simply set test questions and expect an answer.
You must have an answer in the same book in which you found the question (if not then you should be using a different book) and so you should ask about whichever part of the answer is causing you problems.
You need to calculate the carrying value as at 31 December X2 using the original depreciation of 15,000 a year. So the carrying value at that date was 130,000.
Then you need to calculate the new depreciation based on the value of 130,000 at 1 Jan X3, a remaining life of 4 years (from 1 Jan X3), and a residual value of 40,000.Subtract this from the 130,000 and you have the carrying value as at 31 Dec X3.
Dear sir, how do we calculate revaluaton surplus, when we revalute a depriciated asset ? Unrealised profit and revaluaton surplus is the same thing ? .
sukriti: Because when you calculate the depreciation for X3 you should take into account the knew knowledge you have at that date regarding the expected life.
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