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At December 2003 Q, a limited liability company, owned a building that had cost $800,000 on 1 January 2004.
It has been depreciated at 2% per year.
On 31 December 2003 a revaluation to $1, 000,000 was recognized. At this date the building had remaining useful life of 40years.
What is the balance on the revaluation surplus at 31 December 2003 and the depreciation charge in the statement of profit or loss for the year ended 31 December 2004?Solution given by Bpp:
Revaluation surplus – (1,000,000 – (800,000 – (800,000 x 2% x 10*)
Depreciation charge – (1,000,000/40) =$25,000Question: I understand how the depreciation charge is calculated. However, what I do not clearly understand is how they arrived at 10 to multiply for revaluation surplus.
Can I please get some help on this.You have copied the dates wrongly. It is not 2003 but 20X3, and not 2004, but 20W4 (and W comes before X 🙂 )
The 800,000 x 2% x 10 is the accumulated depreciation i.e. the total depreciation between the date of purchase and the revaluation.
The ’10’ is because between January 20W4 and December 20X3 is 10 years 🙂
(The exam will use ‘real’ years and not have things like 20W4 🙂 )
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