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Depreciation and Revaluation of Fixed Assets The following details were taken from the books of Farrell Ltd: 01/01/2019 Buildings at cost amounted to €840,000 - Leaving Cert Accounting - Question 4 - 2021
Question 4
Depreciation and Revaluation of Fixed Assets The following details were taken from the books of Farrell Ltd: 01/01/2019 Buildings at cost amounted to €840,000. 01... show full transcript
Worked Solution & Example Answer:Depreciation and Revaluation of Fixed Assets The following details were taken from the books of Farrell Ltd: 01/01/2019 Buildings at cost amounted to €840,000 - Leaving Cert Accounting - Question 4 - 2021
Step 1
The buildings account for the two years 2019 and 2020.
Answer
To show the buildings account for the years 2019 and 2020, we recognize the cost of buildings, add any new purchases, and account for any disposals or revaluation.
-
For 2019:
- Initial balance: €840,000
- Add purchase on 01/06/2019: +€210,000
- Less disposal (sold for €96,000) gives the book value on 01/07/19: -€160,000
Calculation:
egin{align*} ext{Total for 2019} &= €840,000 + €210,000 - €160,000
&= €890,000
ext{Value of Buildings on 31/12/2019} &= €890,000 \end{align*} -
For 2020:
- Opening balance (Revaluated): €970,000
- Add depreciation for the year (5% of €970,000): -€48,500
Calculation:
- The value of buildings on 31/12/2020:
egin{align*} ext{Value of Buildings} &= €970,000 - €48,500
&= €921,500 \end{align*}
Thus, the building value will reflect appropriately in the accounts.
Step 2
The provision for depreciation account for the two years 2019 and 2020.
Answer
Provision for depreciation accounts for the cumulative depreciation charged against the buildings over the two years.
-
For 2019:
- Opening balance: €157,000
- Add depreciation charged for 2019: +€44,000
- Closing balance for 2019:
egin{align*} ext{Total Provision 2019} &= €157,000 + €44,000
&= €201,000 \end{align*} -
For 2020:
- Opening balance: €201,000
- Add depreciation charged for 2020 (based on €970,000): +€48,500
- Closing balance for 2020:
egin{align*} ext{Total Provision 2020} &= €201,000 + €48,500
&= €249,500 \end{align*}
This shows the accumulated provision in the account over the two years.
Step 3
The buildings disposal account for the year ended 31/12/2019.
Answer
For the buildings disposal account, we focus on the sale of the building on 01/07/2019:
- Cost of the building sold: €160,000
- Sale price: €96,000
- Book value at the date of sale: €86,000
The entry for disposal:
- Loss on disposal could be calculated as:
egin{align*}
ext{Loss on disposal} &= ext{Cost} - ext{Sale Price}
&= €160,000 - €96,000 = €64,000 \end{align*}
The buildings disposal account for the year shows the financial impact of this transaction.
Step 4
The revaluation reserve account.
Answer
The revaluation reserve is adjusted based on the increase in the value of the buildings following revaluation:
- Revaluation amount on 31/12/2020: €970,000
- Previous book value before revaluation: €921,500
- Increase in value:
egin{align*}
ext{Increase} &= €970,000 - €921,500
&= €48,500 \end{align*}
This increase would be credited to the revaluation reserve account, reflecting the enhanced value of the asset.