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The plant and machinery ccount (at cost) of a business for the year ended 31 December 20X5 was as follows:
PLANT AND MACHINERY- COST
DEBIT CREDIT 20X5 20X5
1 JAN Balance b/f 240,000 31 MAR Transfer to disposal a/c 60,000
30 JUN Cash purchase of plant 160000 31 DEC Balance c/f 340,000
=400,000 =400000The company’s policy is to charge depreciation at 20% per year on the straight line basis, with proportionate depreciation in the years of purchase and disposal.
What should the depreciation charge for the year ended 31 December 20X5?
A. $ 68,000
B. $ 64,000
C. $ 61,000
D. $ 55,000Sir can you explain me this question step by step. Sir please show a me a logical approach to this question as I didn’t understand very much in the book answer.
There is more than one way of getting the answer. Here is one way:
From 1 Jan to 31 Mar (3 months), the cost remained at 240,000. So the depreciation for that period is 20% x 240,000 x 3/12
From 1 Apr to 30 Jun (3 months), the cost was 180,000 (240,000 – 60,000). So the depreciation for that period is 20% x 180,000 x 3/12
From 1 Jul to 31 Dec (6 months), the cost was 340,000 (180,000 + 160,000). So the depreciation for that period is 20% x 340,000 x 6/12
Now all you need to do is get the total 🙂
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