Jerome pic bought a large plot of freehold land for 3,600,000 on which Jerome intends to build

Question:

Jerome pic bought a large plot of freehold land for £3,600,000 on which Jerome intends to build a storage depot. The land was bought just before news was released of a new road link, and the neighbouring plot, which is very similar, is now on the market at £4,700,000. Indeed, Jerome has been offered £4,200,000 for its own plot. However, Jerome intends to build on the new plot because it is believed that the present value of future inflows Just from the land will amount to at least £5,000,000.

Jerome’s only other major asset at the moment is a fleet of delivery lorries, for which a total of £1,300,000 was paid at various times over the past year. Prices of new lorries have not moved significantly since then, but the transport manager esti¬ mates that the second-hand value of the existing fleet is only about £800,000. More positively, she has estimated the net benefit of the fleet at £1,100,000 in present value terms. The lorries have a useful life of about four years.

(a) Draft the historical cost and deprival value balance sheets for Jerome, including depreciation where appropriate.

(b) Assuming Jerome originally recorded all assets on a historical cost basis, but, after preparing the balance sheet, wishes to revalue them on an undepreciated deprival value basis, show the Revaluation Account.

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Related Book For  book-img-for-question

Financial Accounting

ISBN: 9780273658597

3rd Edition

Authors: Anne Britton, Christopher Waterston

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