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anyone working on F3 Uk version, I have a problem with accumulated depreciation caculation. bpp practice & revision kit page 9, No.6 preparation question: Riffon, how can one caculate the plant & machinery this year’s depreciation by 800,000×25%? for P&L account, I thought it should be: cost of plant & machinery by the end of year is 800,000 ; disposal item accumulated depreciation is 180,000; total accumulated depreciation for plant & machinery is 306,000, therefore the net book value for P&M current year before depreciation is 800,000-(306,000-180,000)=674,000; straight line rate 25%, so current year deprecation charged into P&L account should be 674,000×25%=168,500, but the answer is 800,000×25%=200,000.
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Well, I’m afraid you’re just not understanding what is P&M account @ cost and what is Accumulated depreciation. It simply need revising – do it with your course notes.
800,000 is balance c/d for P&M, it means that you shouldn’t deduct any 306,000 and 180,000 from this amount.
306,000 = this is accumulated depreciated brought down from the previous year, so it should be in your account of Accumulated depr-n. That’s why the name of account is ACCUMULATED, so every year you add your annual depreciation charge to previous year amount. So 306,000 should’t be deducted.
180,000 = this was accumulated depreciation for plant, which was sold. If you sell a plant or anything, you credit Plant account by cost of that plant, and also debit Accumulated depreciation by that amount, which was ACCUMULATED during all the years. So you simply remove it. And again there is nothing to do with this amount regarding those 800,000 of balance b/d.
Maybe it’s not a really good explanation, I’m not native speaker 🙂
But in steps: 1) Opening balance of accum. depr-n = 306,000 – credit side
2) Sold plant => (180,000) => debit side
3) All above was in the past. You are know to calculate depreciation charge for this year. So you take 800,000 because it’s closing balance of P&M account, count 25% and add it to the credit side fo Accum. depr-n account.
4) You calculate balance c/d, which is 326,000…Hopefully, it was understandable 😀
Actually, I understood it after long staring at answer and trying to explain myself what’s going on and why 🙂
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