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P2-D2.
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- August 5, 2022 at 10:03 pm #662529
An entity revalued its land and buildings at the start of the year to
$60 million ($15 million for the land). The property cost $30 million ($6
million for the land) ten years prior to the revaluation. The total
expected useful life of 40 years remained unchanged. The entity’s
policy is to make an annual transfer of realised amounts to retained
earnings.
Show the effects of the above on the financial statements for the
year.ANS
(W1)
Land Buildings Total
Cost 6,000 24,000 30,000
Depreciation (10/40) (6,000) (6,000)
–––––– –––––– ––––––
Carrying amount 6,000 18,000 24,000Good day,Please can you explain why the depreciation for building was calculated as 10/40 and not 1/40 as they give different answers. Thank you
August 13, 2022 at 7:58 am #662993Hi,
They are calculating the depreciation that has already been charged to work out the carrying value. As it was purchased 10 years ago we will have charged 10/40 of its initial cost.
Thanks
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