Valix Finacc vol 1 Problem 19-8

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 19 Problem 19-9

                                                                                                                                          Replacement

                                                                                                                          Cost               cost            Appreciation

Building                                                                        3,000,000          5,000,000          2,000,000

Accumulated depreciation                                           600,000          1,000,000             400,000

                                                                                    2,400,000          4,000,000          1,600,000

Accumulated depreciation on cost (3,000,000 x 20%)                                                   600,000

Life of asset (100% / divided by 4%)                                                                                25 years

           

Percent of accumulated depreciation (5 years / 25)                                               20%

Gross replacement cost (4,000,000 / 80%)                                                                   5,000,000

Accumulated depreciation on replacement cost (5,000,000 x 20%)               1,000,000

                                                                                                                                                 

a. “Should be entry:

     Building                                                                                            2,000,000

            Accumulated depreciation                                                                               400,000

            Revaluation surplus                                                                                         1,600,000

b. Correcting entry:

     Building                                                                                           1,000,000

     Retained earnings                                                                          1,000,000

            Accumulated depreciation                                                                               400,000

            Revaluation surplus                                                                                         1,600,000

c. Depreciation (4,000,000 / 20)                                                              200,000

            Accumulated depreciation                                                                               200,000

                                                                                                           

d. Revaluation surplus                                                                 80,000

            Retained earnings (1,600,000 / 20)                                                                         80,000