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Meekha (Querist)

12 February 2010 AD ltd acquired a plant on 1.4.2000 for rs.200lakhs. it charges depreciation on SLM basis estimated useful life 10 years and scrap value at 2.5%. At the beginning of 5th year the asset was revalued at 10% of the WDV and the revaluation profit was transferred to Revaluation reserve. The excess depreciation arising out of revaluation was adjusted by taking transfer from revaluation reserve. while charging depreciation after revaluation estimated remaining useful life was assumed to be 6 years and scrap realization was expected to be 2.5% of the revalued figure. at the beginning of the 8 years the company found the asset useless and accordingly had decided to retire it. on the date of retirement the estimated realizable value of the asset was rs.650,000. find out the loss on retirement of the asset.
Sir,the ans given is 62.30lakhs can you please tell me how and give me the solution part Sir?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

13 February 2010 In your problem

The assest value = 200 Lakhs
Less Scarp Estimataion2.5% = 5 Lakhs
Total depreciable asset 10yrs= 195 Lakhs
Revaluation is on 5th year
Beginning i.e 4 yrs complete
So 4 Years Dep under SLM =195/10 x 4
= 78 lakhs
WDV on revaluation date is =200-78 lakhs
=122 lakhs

Revalued on 10% of WDV= 122+10%
= 134.2 Lakhs

Retirement on 8th year beginning i.e 7year completed

Depreciation after revaluation is
134.2 less 2.5 % scarp
=134.2- 3.36 lakhs
=130.85 lakhs
3years depreciation = 130.85/6*3
=65.42 Lakhs
So WDV on retirement date = 134.2-65.42
WDV =68.78 Lakhs
So sales WDV -Sale value= 68.78- 6.5 lakhs

Loss on sale=62.28 lakhs

I hope this ok.

Meekha

Meekha (Querist)

13 February 2010 Yes Sir I went wrong in taking 2 years instead of 3 years after revaluation. Thank you for making me understand my mistake and helping me. Thank you once again Sir.

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