Banjo Co. purchase a building on 30 June 20X8 for $1250,000. At acquisition, the useful life of the building was 50years. Depreciation is calculated on the straight line basis. 10years later, on 30 June 20Y8 when the carrying amount of the building was $1,000,000, the building was revaluated to $1,600,000. Banjo Co. has a policy of transferring the excess depreciation on revaluation from the revaluation surplus to retained earnings.
Assuming no further revaluation take place, what is the balance on the revaluation surplus at 30June 20Y9?
Answer is $585,000
How to get this answer and why?
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At the date of the revaluation, there is a revaluation surplus of 600,000.
The depreciation for 20Y9 is 1,600,000 / 40 = 40,000 (there are 40 years of life remaining)
Had it not been revalued, then the depreciation would have stayed at 1,250,000/50 = 25,000.
Therefore the excess depreciation is 40,000 – 25,000 = 15,000.
Therefore the balance on the revaluation surplus account is 600,000 – 15,000 = 585,000.
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