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This is a sum from one of the technical articles
A property was purchased on 1 January 20X0 for $2m (estimated depreciable amount was $1m and it had a useful life 50 years). Annual depreciation of $20,000 was charged from 20X0 to 20X4 inclusive and on 1 January 20X5 the carrying amount of the property was $1.9m. The property was revalued to $2.8m on 1 January 20X5 (estimated depreciable amount was $1.35m and the estimated useful life was unchanged). Show the treatment of the revaluation surplus and compute the revised annual depreciation charge.
SOLUTION:
Revaluation surplus = $900,000 ($2.8m – $1.9m)
Depreciable amount of the property is $1.35m
The remaining estimated useful life 45 years
The depreciation charge from 20X5 onwards would be $30,000 ($1.35m x 1/45).Im not quite clear about the treatment of $2.8m(i.e they’ve ignored this amount) and the difference =1.45m(2.8m-1.35m),where does it go?
Thank you for taking the time to read my question 🙂
Hi,
The $2.8m is the amount the asset is revalued to, so by increasing the value by $900,000 to $2.8m gives the new value of the asset on the SFP. Effectively they have DR Asset $900,000 CR Revaluation Surplus $900,000. It has not been ignored.
The depreciable amount of $1.35m does not go anywhere. This is essentially the revalued amount of $2.8m less the residual value of the asset to give the $1.35m that is then used to calculate the depreciation per annum, i.e. $1.35m/45 years.
Hope that clears it up for you.
Thanks
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