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Hi please explain me the solution to this question. Thank you so much…
A limited liability company acquired building on 1st January 2001.
The building was revalued for the first time on 30th September 2003 to $120,000.
The company has a policy of depreciating building at 2% straight line basis with proportionate change in the year of acquisition ans assuming no residual value.
The transfer to the revaluation reserve for the building for the year ending 31st December 2003, was $16050.
What was the acquisition cost of the asset on 1st January 2001?I believe that the answer is 110,000! 110,000 depreciated for 2.75 years at the rate of 2% per annum has a carrying value of 103,950. This is then revalued BY 22,100. The evaluation firstly eliminates the accumulated depreciation of 6,050 and the surplus over 6,050, ie 22,100 – 6,050 = 16,050 is added to the asset and credited to the revaluation reserve.
This assumes that there is no transfer from revaluation reserve to retained earnings in the year to December 2003.
My only reservation is that 22,100 is a strange amount to revalue BY in an exam question
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