Hi there I find this question really annoying. In the trial balance provided, Land and Buildings are provided as combined $1300 at cost, so as their depreciation charge $195. In the notes, it says that buildings (book value at Dec 2006 is $555) are depreciated on a straight line basis assuming a residual value of $100 in Dec 2010, but no mention of the depreciation charge for land. Then, the solution says that the depreciation charge for building is $91 ( ($555-$100) / 5 years, fair enough) but how does this ties back to the $195 from the trial balance? There were no depreciation charge for land. If there were no charge for land, how come $195 is not a multiple of $91 since this is on a straight line basis?
Hi again Good idea to think about this check (if the depreciation was a multiple of $91 it would provide some reassurance wouldn't it?), but annoyingly the check doesn't always work (as you've noticed ) The reason we can't check the historic depreciation is that the company may have changed aspects of its accounting treatment of the buildings in the past, eg changed the depreciation life or residual value of the building estimate. Hope this helps and that the studying is going well Best wishes Lynn
Hahaha.. that was exactly what I thought was the case here when I woke up this morning In a typical question such as this one, where there is no mention for depreciation for land but the depreciation item is provided as combined (land and buildings), can we safely assume that there isn't a depreciation charge for land? Is it usual to depreciate lands?
Apologies for my delayed response - just noticed the follow up question... It's usual to have no depreciation of land Lynn
