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Hi , I am really stuck on the following question , would you be able to assist me with some workings as to how i get an answer please ?
ABK co bought a property on the 31 Dec 2003 for $340,000. At the date of purchase , ABK estimated the useful life of the property to be 32 years. On 31 Dec 2005, the property was revalued to $410,000. There was no change in its useful life. On 30 June 2007, ABC co sold the property for $485,000. ABK co depreciates property on a straight line basis , with a proportional change in the years of purchase & disposal.
– What is the profit on disposal of the property that should be recorded in ABK co’s financial statements at 31 Dec 2007?Kind Regards , I hope to hear from you soon & thank you in advance 🙂
As at 31 Dec 2005, the property has been owned for 2 years, is revalued and so now stands at $410,000.
The useful life remaining is 30 years, and so the deprecation from then on is 410,000/30 per year.
It is sold 1.5 years later, so the carrying value at the date of sale is 410,000 – (410,000/30 x 1.5) = $389,500.
It is sold for $485,000, so the profit on disposal is $485,000 – $389,500 = $95,500.(There may be transfers between the revaluation reserve and the retained earnings, but these do not appear in the Statement of profit or loss).
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