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A company’s policy is to charge depreciation on plant an machinery at 20% every year on cost , with Proportional depreciation for items purchased or sold during a year. The company’s plant and machinery at cost account for the year ended 30 September 2003 is show below.
Plant & Machinery – COST
(Dr)
2002
1 Oct Balance 200,000
2003
1 April Cash-purchased of plant 50,000
——————
250,000(Cr)
2003
30 jun Transfer to Disposal Account 40,000
30 Sep balance 210,000
—————-
250,000What should be the depreciation charge for plant and machinery ( excluding any profit or loss on the disposal) for the year ended 30 September 2003?
a. 43,000
b. 51,000
c. 42,000
d. 45,000I’m quite confused on how to calculate and solve this problem. Can anyone help?
Answer is A) 43,000
Proportional charge is applied for items bought or sold during the year. So, using the rule:Oct 1 2002 – March 31 2003 (6 months):
Machinery Value = 200,000
Depreciation charge = 200,000 x 20% x 6/12 = 20,000April 1 – June 30 2003 (3 months):
Machinery Value = 200,000+50,000 = 250,000
Depreciation charge = 250,000 x 20% x 3/12 = 12,500June 30 – Sep 30 2003 (3 months):
Machinery Value = 250,000 – 40,000 = 210,000
Depreciation charge = 210,000 x 20% x 3/12 = 10,500Total Depreciation charge = 20,000+12,500+10,500 = 43,000
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