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Q&A Bank Part 2, Q2.26

N

ntalwar

Member
Hi,

I am little confused with the calculation of the depreciation in the Income Statement. The factory was bought in Dec '95 and depreciated over a period of 20 years. The revaluation was carried out in Jan '09, when 13 years had passed. So, shouldn't revaluation of £750,000 be then depreciated over the remaining 7 years?

The answer states that the remaining life of the factory is 10 years?

Would really appreciate some light on the matter.

Warm regards
 
Hi!

I had the EXACT same thought....!! I'm glad I wasn't the only one to have this query!!

We're defo right :cool: ....(I hope!)
 
Hi,

I worked out how the depreciation has been charged over ten years about 5 mins after posting!

On revaluation a year ago, the property value was £750,000, up from £670,000 book value (as given in the question). It is also said that the revaluation reserve is entirely made up of the revaluation of the factory and the current book value given in the balance sheet is £675,000. Therefore, the depreciation charged over the last year is £75,000 and the same would be charged over the subsequent years on straight line basis.

This goes back to Chapter 8 where it says (in the Revaluation of Non-Current Assets section) that on revaluation a company can also reassess the likely useful life of an asset. Hence, it seems that, in addition to the asset having increased in value, the company has also increased its useful life from the outstanding 7 years to 10 years.

The question was quite tricky but I'm happy I worked it out!;)

Cheers
Nish
 
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