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Hi I came across this NCA adjustment in the question
20 year leased property at cost 100,000
Accumulated depreciation 25,000Here is how this adjustment has been solved in the revision kit
cost 100,000
Accumulated depreciation (25,000)
—————
75000
Current year depreciation (5000) (100,000/20years)
————–
70,000Here is how I am doing it (since this is how I have been solving all the NCA questions so far)
cost 100,000
Accumulated depreciation (25,000)
—————
75000
Current year depreciation (3750) (75,000/20years)
————–
71,250Please explain to me why this is wrong? All the past exam questions that I have solved, this is how I have seen the calculation of a Non current asset.
Thanks a lot.
Another question, in the trial balance of above question, the bank interest is on the debit side but in the statement of profit or loss it is being treated as an overdraft. Why is that? Isn’t balance on the credit side treated as an overdraft? That’s how we decide whether the bank in trial balance is an asset or a liability.
First question – this depends on the precise wording of the question
If an asset is purchased and depreciated over an estimated 20 year life then, after 5 years’ depreciation, there is only 15 more years of life left …. so your calculation could be either 100,000/20 = 5,000 or you could arrive at the same conclusion with 75,000/ (20 – 5) = 5,000
But if a question says that, after 5 years, the asset was revalued (say) and its estimated remaining useful life was 20 years, then you’d divide by 20 years. The key here is the use of the word “remaining”
If, instead, that same revaluation example had said “and its estimated life has not changed”, then you’d divide by 15 years
OK?
Second question – are you confusing bank interest (an expense account and hence a debit) with bank (either an asset or a liability – it could be a positive balance at the bank or it could be an overdraft)
In that trial balance, what’s the seventh figure up from the bottom of the trial balance – the one with a credit balance of 5,500?
You really should watch John’s F3 lectures – what you have done is made a mistake that could have been avoided if you had watched F3 course lectures! And in an F7 exam that sort of error is VERY costly
I will start watching John’s F3 lectures since I am not clear on some of the important concepts. Having said that, no I am not confusing bank interest which appears in Statement of profit or loss with the bank that is a part of Statement of financial position, either as a current asset or current liability depending on which side the balance of the bank is.
If you can open the link given below, you’ll be able to see what confused me. In the statement of profit or loss, the finance cost says,
Finance costs (900 overdraft + 3,676 (w (ii))) (4,576)“Finance costs 900 overdraft” is simply telling you that this particular element of the finance costs relates to the interest on the bank overdraft and separates it from the interest on the convertible loan
If you look in the statement of financial position you’ll see the 5,500 overdraft sitting proudly in the current liabilities
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