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Hi,
I would kindly like your help with Q19 Highland (BPP SBR Workbook Sep 2019 – Jun 2020) Page 756 in the Further Question Practice section.
In the answer (Page 797), in working 4, they have added back “proportion of loss depreciated” of $3500 after calculating the loss on disposal of the buildings.
In the question, note (d) says:
“All companies use the straight-line method of depreciation and charge a full year’s depreciation in the year of acquisition and none in the year of disposal. Depreciation on fair value adjustments is time apportioned from the date of acquisition.”
Can you please explain why are they adding back the $3500 after calculating loss on disposal?
Couldn’t we have deducted the depreciation for 9 years ($800000 × 41/50) instead of 10 years ($800000 × 40/50) when calculating the net book value to arrive at the loss on disposal as no depreciation is to be charged in the year of disposal?
Thanks
If you are studying for the exam in September please do not spend time on this type of consolidation question which is totally unrepresentative of SBR. If you are studying for December it is fine in order to revise basic consolidations.
The learning point which matters is that you have to look at the depreciation policy from the perspective of the group. The group as a whole has not disposed of the asset. Therefore the point about no depreciation in the year of disposal is not relevant.
I suppose that is the asset is transferred at a loss then there will be less depreciation after the transfer then there would’ve been if the transfer not be made. Hence the final adjustment for the 3500.
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