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Hi
Question 1 of section 6 (non current assets) in the mini exercises refers.
I have worked out the revaluation correctly as well as the depreciation expense for the buildings as well as the plant, however the answer also gives this entry:
“Dr Revaluation 1000
Cr S of Comp Inc 1000
Investment property of Kala.”I don’t know where this is coming from. What am I missing?
Secondly, regarding the leased plant. What does OUFL a/c refer to?
And why is the finance cost worked on 70,000 not on the annual rental of 22,000.?Thanks so much.
Claire
“Investment property of Kala” -I can’t imagine why I have written this in the answer! It shouldn’t be there
As for the calculation of $1,000 debited to the Revaluation Reserve, this represents the transfer of the ‘additional’ depreciation on the building necessitated by the revaluation hy $35,000 and, of course, the building had 35 more years of useful file
It’s good practice (not mandatory) to make this annual transfer from revaluation reserve to retained earnings. Think of it as compensation for the retained earnings figure because those accumulated profits are now being hit for an additional $1,000 depreciation just because Kala chose to revalue its land and buildings
If you had listened to the lectures you would have heard me say OUFL A/c as the abbreviation for Obligations under Finance Lease Account
The fair value / cost price of the asset was $92,000 and a payment of $22,000 was paid immediately on signing the lease
Therefore how much money has Kala borrowed? And the rate of interest is 10% so what is the finance cost (Hint: it’s the interest rate as applied to the capital amount outstanding on the Obligations under Finance Lease Account)
OK?
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