a Kunal plc owns a property land and buildings which was bou

a) Kunal plc owns a property (land and buildings) which was bought for £1,296,000 on 1 January 2009, when the cost of the freehold land was estimated to be twice the cost of the building on it. At this time, its useful life was estimated at 50 years. On 1 January 2016, the whole property was valued at £1,685,600 and the building was estimated to be worth the same amount as the land. No change was made to its estimated useful life (Land is not depreciated; only buildings). The directors wish to reflect the increase in value in the financial statements as at 31 December 2016. Required: i Calculate the net book value of the land and buildings in Kunal plc\'s financial statements as at 31 December 2015 (6 marks) i Calculate the carrying amounts of freehold land and buildings on Kunal plc\'s statement of financial position as at 31 December 2016 (4 marks)

Solution

i. FIrst let us calculate the value of land and building on january 1 2009.

let cost of building be x,

the cost of land will be 2x.....(since it is twice that of building cost)

now,

cost of building + cost of land = 1,296,000.

=> x +2x = 1,296,000

=>3x = 1,296,000

=>x = 432,000.

=> cost of building = 432,000.

cost of land = 864,000..

annual depreciation on buildings = 432,000 / 50 years

=>8,640.

total depreciation till 31 december 2015 = 8,640 * 7 years =60,480

now,

net book value of building on 31 december 2015 => 432,000 - 60,480

=>371,520.

net book value of land on 31 december 2015 = 864,000......(since there is no depreciation on land).

net book value of land and buildings = 371,520 + 864,000 =>1,235,520.

ii.carrying amount of land and building on 31 december 2016.

revised value of land and building = 1,685,600

value of land = 1,685,600 / 2

=>842,800.

value of building = 842,800.

annual depreciation on building = 842,800 / 43 years = 19,600...........(since there is no change is estimated useful life of 50 years and 7 years have elapsed since 2009).

carrying amount of building = 842,800 - 19600 =>823,200.

carrying amount of freehold land = 842,800

carrying amount of freehold land and building as at 31 december 2016. = (842,800 + 823,200) =>1,666,000.