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Hello,
I have confusion on the below question.Banter Co purchased an office building on 1 January 20X1. The building cost was $1,600,000 and this was depreciated by the straight line method at 2% per year, assuming a 50-year life and nil residual value. The building was re-valued to $2,250,000 on 1 January 20X6. The useful life was not revised. The excess depreciation charge will be transferred from the revaluation surplus to retained earnings each year. The company’s financial year ends on 31 December.
What is the balance on the revaluation surplus at 31 December 20X6?The answer is $792,000.
But mine was $742,000. ($2,200,000-$1,422,000-$18,000)
I depreciate $50,000 more to the year ended 31 DEC 2016.Can you explain why I should not calculate depreciation for year of 2016?
Depreciation is calculated for 2016. What has happened is that you have copied one of the figures wrongly in your workings. The building was revalued to 2,250,000 not 2,200,000 on 1 January 20X6.
The revaluation surplus on 1 Jan X6 is (2,250,000 – (90% x $1,600,000)) = $810,000.
The old depreciation charge was 1,600,000 / 50 = $32,000 per year.
The new depreciation charge is 2,250,000 / 45 = $50,000 per year (for 20X6 onwards).Therefore there is a transfer in 20X6 of 50,000 – 32,000 = $18,000.
Therefore the revaluation surplus at the end of 20X6 is 810,000 – 18,000 = $792,000Thank you for your help. You really help me a lot.
Could you explain one more thing?
The electricity account for the year ended 30 June 20X1 was as follows.
Opening balance for electricity accrued at 1 july 20×0 $300
Payments made during the year
1 August 20×0 for three months to 31 July 20×0 $600
1 November 20×0 for three months to 31 October 20×0 $720
1 February 20×1 for three months to 31 January 20×1 $900
30 June 20×1 for three months to 30 April 20×1 $840
1 August 20×1 for three months to 31 July 20×1 $840Which one is the following is the appropriate entry for electricity?
Answer is:
Accrued at 30 june 20×1 $560
Charge to SPL year ended 30 june 20×1 $3,320I calculated total expenses for the year like this: 200(only for July 20×0) + 720 + 900 + 840 + 560(only for May&June) = $3,220
But how can I get the answer for accrued and total charge they ask me?
In future, please start a new thread when you are asking about a different topic.
The accrual at the end of the year is for May and June and is therefore 2/3 x 840 = 560.
The total cash paid during the year of 600 + 720 + 900 + 840 = 3,060
Therefore the charge in the SOPL is 3,060 (cash paid) – 300 (the opening accrual) + 560 (the closing accrual) = 3,320.
(It turns out that the accrual last year was wrong, but it is effectively adjust for in this years expense. I do explain this in my free lectures on accruals and prepayments. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.)
I watched your free course but still hard to understand it. What does ‘the accrual last year was wrong’ mean exactly?
They accrued $300 because that was what they estimated was owing for May and June 20X0.
However when the invoice for the 3 months to July X0 arrived, it was for $600. So really they should have accrued 2/3 x $600 = $400.
However it is too late to change last years accounts and so automatically it is corrected in this years accounts.
Please do watch the lecture again because I do make this point in the lecture.
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