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F 3 – PEA Disposal , Reducing Balance Method with pro rata

Forums › ACCA Forums › ACCA FA Financial Accounting Forums › F 3 – PEA Disposal , Reducing Balance Method with pro rata

  • This topic has 5 replies, 4 voices, and was last updated 7 years ago by secondstar.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • May 4, 2017 at 5:53 pm #384871
    chviet
    Member
    • Topics: 4
    • Replies: 1
    • ☆

    QUESTION 1

    A car was purchased by a newsagent business in May 20X0 for:
    $
    Cost 10,000
    Road tax 150
    ———-
    Total 10,150

    The business adopts a date of 31 December as it’s year end.

    The car was traded in for replacement vehicle in August 2003 at an agreed value of 5,000. It has been depreciated at 25% per annum on the reducing balance method, charging a full years depreciation in the year of purchase and none in the year of sale.

    What was the profit or Loss on Disposal of the Vehicle during the year ended December 2003?

    A. Profit 718
    B. Profit 781
    C: Profit 1,788
    D. Profit 1836

    QUESTION 2

    The plant and machinery at cost account of a business for the year ended 30 June 20X4
    was as follows:
    PLANT AND MACHINERY – COST

    (DR)
    20X3
    1 Jul Balance 240,000
    20X4
    1 Jan Cash – purchase of plant 160,000
    ————
    400,000

    (CR)

    2003
    30 Sep Transfer disposal account 60,000

    20X4
    30 Jun Balance 340,000
    ————
    400,000

    The company’s policy is to charge depreciation at 20% per year on the reducing balance basis, with
    Proportionate depreciation in the years of purchase and disposal.
    What should be the depreciation charge for the year ended 30 June 20X4?
    A. $68,000
    B. $64,000
    C. $61,000
    D. $55,000

    May 5, 2017 at 7:22 am #384912
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    Question 1:
    Ans) Profit 781
    Workings:
    Car Cost = 10,000
    Road Tax is excluded since it isn’t a capital cost. It will be renewed on intervals.

    Year 20X0:
    Depreciation = (10,000-0)*25% = 2,500
    Net Book Value = 10,000-2,500 = 7,500
    Accumulated Depreciation = 2,500

    Year 20X1:
    Depreciation = (10,000-2,500)*25% = 1,875
    Net Book Value = 7,500-1,875 = 5,625
    Accumulated Depreciation = 2,500+1,875 = 4,375

    Year 20X2:
    Depreciation = (10,000-4,375)*25% = 1,406
    Net Book Value = 5,625-1,406 = 4,219
    Accumulated Depreciation = 4,375+1,406 = 5,781

    Year 20X3:
    No Depreciation in the year of disposal.
    Profit/Loss on Disposal = PEA Proceeds – NBV
    Profit/Loss on Disposal = 5,000 – 4,219
    Profit on Disposal = 781

    May 5, 2017 at 2:55 pm #384954
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    Question 2:
    Ans) $55,000
    Workings:

    1 July 20X3 – 30 Sep 20X3 (3 months):
    P&M Cost = 240,000
    Depreciation = 240,000*20%*3/12 = 12,000

    1 Oct 20X3 – 31 Dec 20X3 (3 months):
    P&M Cost = 240,000-60,000 (disposed) = 180,000
    Depreciation = 180,000*20%*3/12 = 9,000

    1 Jan 20X4 – 30 June 20X4 (6 months):
    P&M Cost = 340,000
    Depreciation = 340,000*20%*6/12 = 34,000

    Total Depreciation Charge = 12,000+9,000+34,000 = 55,000

    August 28, 2017 at 8:23 pm #403965
    huseynovrashad1983
    Member
    • Topics: 0
    • Replies: 1
    • ☆

    Let me give you question about this answer.
    Every time I look at this question so it is always confused me. As we know, the car was purcheased in May but you computed depriciation for whole 2000 year as 2500 ( 10.000*25%=2500). In my opinion depriciation for 2000 year should be calculated as follow:
    10000*25%/12*7= 1458.33 (it takes a 7 months from may to december)
    It is possible I make a mistake. I couldn’t see any comprehensive explonation about this matter.
    Could you explain this issue again, pease?

    Thank you in advance!

    August 29, 2017 at 7:57 am #404012
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    If you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.

    August 30, 2017 at 9:09 am #404285
    secondstar
    Member
    • Topics: 16
    • Replies: 220
    • ☆☆☆

    @huseynovrashad1983
    Please read the question very carefully whenever you’re attempting one.
    The question has already mentioned that “a full years depreciation in the year of purchase and none in the year of sale”.

    That is why we have charged the full 2,500 amount instead of 1,458.

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