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1/4/2014- PPE at cost (20 year original life)- $12m
1/4/2014- Accumulated depreciation -$3.6m1/10/2014- Revalue PPE to $10.8m
Question: What is the depreciation charge in statement of profit or loss for the year ended 31 March 2015?
How to do this question?
Hi,
The depreciation charge will be for the twelve months from 1 April 2014 to 31 March 2015.
From the 1 April 2014 to 1 October 2014 (date of revaluation) the charge will be based on the original cost of $12m over the 20 years and pro-rated for six months.
From 1 October 2014 to 31 March 2015 (reporting date) the charge will be based on the revalued amount of $10.8m over the remaining useful life. The difficulty is knowing the remaining life of the asset. Given the annual depreciation charge was initially $0.6m ($12m/20 years) and the accumulated depreciation at the start of the year was $3.6m, then we have used the asset for 6 years ($3.6m/$0.6m) at the start of the year. Given that the asset was revalued six months into the current year then we have used the asset for 6 years and 6 months, hence the are 13 years and 6 months left of the assets life. You can now use this figure to held calculate the depreciation for the second half of the year.
Give it a go and see how you get on.
Thanks
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