Revaluation depreciation method is usually used to calculate depreciation of assets where, there are numerous small identifiable assets of low value but nevertheless of lasting value such as loose tools or livestock.
Under revaluation depreciation method, the asset is valued at the end of each financial period and this revalued amount is compared with the value in the beginning of the period. The reduction in the value is recorded as depreciation for that year.
When there are new purchases or disposals of assets during the year then the annual depreciation under revaluation method will be calculated by using the following formula:
The value of the loose tools at the beginning of the year was $10000. During the year business purchased loose tools worth $8000. Loose tools at the end of the year were valued at $14000.
Calculate depreciation charge for the year under revaluation method.