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The following trial balance extract relates to a property which is owned by Veeton as at
1 April 20X4.Dr. Cr
$000 $000
Property at cost (20-year original life) 12,000
Accumulated depreciation as of 1 April 20X4 3,600On 1 October 20X4, following a sustained increase in property prices, Veeton revalued its
property to $10.8 million.
What will be the depreciation charge in Veeton’s statement of profit or loss for the year
ended 31 March 20X5?
$_____________ ,000solution given:
$700,000
Six months’ depreciation to the date of the revaluation will be $300,000 (12,000/20 years
× 6/12). Six months’ depreciation from the date of revaluation to 31 March 20X5 would be
$400,000 (10,800/13.5 years remaining life × 6/12). Total depreciation is $700,000.now, my question is why have they used 13.5yrs here instead of 19.5 yrs?
Hi,
The asset was not bought six months ago, it has been owned a lot longer than that. We can work out how long ago through the accumulated depreciation charge of 3,600. If the annual depreciation charge is 600 then there must have been 6 years worth of depreciation charged since acquisition (3,600 / 600), meaning that at the start of this year there were 14 years left of the asset’s life.
If we have charged six months of depreciation this year prior to the revaluation then there will be 13.5 years left (14 years less 6 months) as the remaining useful life. A tricky question for sure!
Thanks
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