I am doing an exercise on my A Level course, the answer is not in the book. I have got to prepare a TP&L account for the year ended 31 Dec 2007.On the amendments this is the question I am stuck on. The building was revalued by an independent and qualified industry specialist on 1 Jan 2007 the value given to the building was £210,000. On the trial balance the building at cost is £200,000, so I know it has gone up by £10,000 which you put to the revaluation reserve, however it says depreciation has not been charged in the current year. Note underneath trial balance depn for building -accumalated SL 5%. There is no accumalated depn to date in the trial balance, so do I work out depn on new amount for the current year. I have looked at notes and on the examples there is always accumalted depn to carry over to the revaluation reserve. Any help would be much appreciated. Thanks. Sue
-- Edited by sally-anne on Monday 11th of July 2011 04:45:43 PM
Sometimes you need to calculate the carried forwards depreciation but this doesn't sound like one of those time.
Looking at the question the property has been revalued to fair value of £210k. From the sound of the question the depreciation clock has effectively been reset so the way the questions been written it would appear that there is no prior period depreciation to consider in this instance (do you ever feel that sometimes questions make things more complex by trying to simplify the scenario!).
The depreciation charge for the year in this instance will simply be the current year depreciation on the full £210k.
One thing to watch here is the depreciation period. If the clock has been reset then you will be depreciating the revalued asset over the remaining rather than original term.
For example if the building was being depreciated on a straight line basis over 10 years with no residual value then 10% per annum (20k) would have been accounted for. If you are now 3 years into the term and the revaluation is 210k again with no residual value then depreciation is over the remaining not original term so 210k over 7 years or 30k p.a.
This is another one of those instances where I wished that I could see the paper as I'm sure that I'm probably missing something (don't suppose that it's taken from Advanced accounting for A2 is it as that books sitting on one of my shelves somewhere).
For a worked example take a look at pages 186/7 of the BPP study text for ACCA paper 1.1. (I'll make that purchase cost effectice for you yet!).
All the best,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Many thanks for your reply, the question I had to answer is in my course notes, I feel sure that this manual has been written by an accountant, not very student friendly in some places. I am finding David Cox AS for Accounting AQA very good for explanation and loads of exercises to consilidate learning. Will look at BPP book as i purchased this from amazon. I am doing this course via home learning, must say not very impressed by my tutor very hard to get hold of. However my boss is usually good when I am stuck on things. Cheers for the answer, I'm sure I will be back soon with some other query. Kind Regards Sue
Stick my two penneth in, if that's Ok. You may have already considered this anyway
Does the question/ scenario indicate when the building was aquired? If it does then it should be possible to work out the balance of accumulated depreciation. Knowing that the depreciation is calculated on 5% straight line, as it says in the question, that means the building has an asset life of 20 years.
Is it possible the accumulated depreciation has been included in another category (Plant & Machinery for example)?
Just a couple of thoughts. It's a bit difficult to second guess when the question isn't in front of you
That was my initial feeling as well Bill but it was the lack of a useful economic life in the question that made me think that couldn't be the case... And led to the same conclussion as yourself. We really need to see the question in order to answer it.
Frustrating isn't it. I'm gnawing at the bit now wanting to know what the actual answer was.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
No it does'nt say when the building was aquired, and the only other fixed assets in this question is motor vehicles and computer equipment. Will scan the question into my laptop and load it up on here. Many thanks. Sue
The building was depreciated at 5% straight line, therefore has an economic life of 20 years
On 01/01/07 the building was revalued at 210K
What's needed is either the accumulated depreciation to work back the number of years already "used up", the aquisition date to work forward to the accumulated depreciation and remaining economic life, or a net book value.
To quote Number Five , Sue "We need more input"
Bill
Your post appeared while I was composing mine Sue. It would be great if you can get a copy we can view. I am sure you have studied it thoroughly but you never know A second pair of eyes may spot something.
Think we have all been in a situation, where the more you look at something the less you see
-- Edited by Wella on Monday 11th of July 2011 07:11:20 PM
nowhere in the question does it state when the building was purchased.
We know that it was sometime before the valuation date of 01/01/08 when the carrying value was £200k and the fair value was £210k.
With no acquisition date I cannot see how anything other than current year depreciation can be calculated for the depreciation figure.
For that matter, don't you have the same issue with Computer Equipment and Motor Vehicles.
The question really feels as though it's been part copied from a book but it's not all there. (One wonders what should have been on the right hand side of the page on the first image?)
Even giving the previous years comparative figures would enable you to work most everything out but with no dates, no figures and no comparatives I'm not seeing any way of getting the accumulated depreciation figures.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Surely in the real world there would be accumualted depn to carry over to the revaluation reserve and the question would have said how many years the buildings had been owned, say the econmic life of 50 years and they had already been owned for 10 years, you would have had something to go on. I will just do depn on the £210, see what you mean on the vehicles and computer equipment as well. Don't know about you but it is not worded very well is it. Will let you know what my tutor makes of my answers. Kind Regards Sue
I have had a little tinker with the basic information given but haven't got much time this morning to get too involved.
I did a very quick (I was rushing so I may have missed something) but if you take the basic information given in the first image, calculate net profit, and create a TB, there is still an imbalance, which may account for the missing accumulated depreciation. This still doesn't help much though, as even if that were the case there is not enough detail to work out the three catagories.
).
