Richy Limited has plant that cost R 345 000 on 01 January 2016. Installation and modification costs R 69 000 (including vat). Transfer costs paid to lawyer amounted to R 20 000. Transport costs for bringing the asset to location amounted to R 20 000. The plant was ready for use on 01 January 2016. The machines were cleared on 01 March 2016 at a cost of R 10 000. Due to the low order levels in April 2016 the plant stood idle. Depreciation is provided over its useful life of 5 years using the straight-line method to a nil residual value. Richy Limited measures plant under the revaluation model. The plant was revalued as follows: 31 December 2016 R 310 000 31 December 2017 R 300 000 31 December 2018 R 250 000 Richy Limited transfers the maximum amount from the realized portion of the revaluation surplus to equity. VAT must be calculated at 15%.
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.
Richy Limited has plant that cost R 345 000 on 01 January 2016. Installation and modification costs R 69 000 (including vat). Transfer costs paid to lawyer amounted to R 20 000. Transport costs for bringing the asset to location amounted to R 20 000. The plant was ready for use on 01 January 2016. The machines were cleared on 01 March 2016 at a cost of R 10 000. Due to the low order levels in April 2016 the plant stood idle.
The plant was revalued as follows:
- 31 December 2016 R 310 000
- 31 December 2017 R 300 000
- 31 December 2018 R 250 000
Richy Limited transfers the maximum amount from the realized portion of the revaluation surplus to equity. VAT must be calculated at 15%.
Required:
Disclose the above information in the notes to the financial statements for years ending 2016, 2017 and 2018. (Include in your answer the
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