Page 177 - F1 Integrated Workbook STUDENT 2018

Non-current assets – Acquisition, Depreciation and Subsequent
Recognition

Solution

Asset A

On 31 December 20X9 Asset A has a carrying amount of $20,000 (cost
$50,000 – depreciation $30,000 ($50,000/10 = $5,000 p.a. multiplied by 6
years).

The cost account will reduce from $50,000 to £25,000.

The accumulated depreciation of $30,000 will be removed from the books.

Overall the carrying amount of the asset has increased from $20,000 to
$25,000. This increase of $5,000 will be credited to the revaluation reserve.

We must remember next year's depreciation will be based on the revalued
amount of £25,000 over the remaining life of 4 years.

Cr Asset cost $25,000
Dr Accumulated depreciation $30,000
Cr Revaluation reserve $5,000
Asset B

On 31 December 20X9 Asset B has a carrying amount of $20,000 (cost
$50,000 – depreciation $30,000 ($50,000/5 = $10,000 p.a. multiplied by 3
years).

The cost account will reduce from $50,000 to £17,000.

The accumulated depreciation will be removed from the books, i.e. = $30,000.

Overall the carrying amount of the asset decreased in value from $20,000 to
$17,000. The decrease of $3,000 is charged against profits in the SPL. This
asset has not been revalued in the past and therefore does not have a
revaluation reserve you can use. You cannot use the reserve from Asset A.

We must remember next year's depreciation will be based on the revalued
amount of £17,000 over the remaining life of 2 years.
Dr Statement of profit or loss expense $3,000
Dr Accumulated depreciation $30,000
Cr Asset cost $33,000

Note: The revaluation reserve relates to asset A. Therefore, only future
downward valuations of asset A can be set against the revaluation reserve.

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