AT Travel Limited acquired a two-story building for use as an office on June 30, 2022, at $2 million. The building is expected to have a useful life of 20 years and a residual value of $100,000. The company used the straight-line method to depreciate the building. On July 1, 2023, the company paid $38,000 for the completion of the newly built car park lots at the back of the building. The market value of the building was estimated at $2.2 million and $2.5 million on June 30, 2023 and 2024, respectively. Required: 1. Determine the carrying amount of the building as at June 30, 2023 and 2024, if the company used the cost method to account for the building. 2. Determine the carrying amount of the building as at June 30, 2023 and 2024, if the company used the revaluation method to account for the building where the balance of the accumulated depreciation on date of revaluation is adjusted using: (a) the write-off method, and (b) the proportionate restatement method.
AT Travel Limited acquired a two-story building for use as an office on June 30, 2022, at $2 million. The building is expected to have a useful life of 20 years and a residual value of $100,000. The company used the straight-line method to depreciate the building. On July 1, 2023, the company paid $38,000 for the completion of the newly built car park lots at the back of the building. The market value of the building was estimated at $2.2 million and $2.5 million on June 30, 2023 and 2024, respectively. Required: 1. Determine the carrying amount of the building as at June 30, 2023 and 2024, if the company used the cost method to account for the building. 2. Determine the carrying amount of the building as at June 30, 2023 and 2024, if the company used the revaluation method to account for the building where the balance of the accumulated depreciation on date of revaluation is adjusted using: (a) the write-off method, and (b) the proportionate restatement method.
Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Gary A. Porter, Curtis L. Norton
Chapter8: Operating Assets: Property, Plant, And Equipment, And Intangibles
Section: Chapter Questions
Problem 8.8MCP
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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