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Derby bought a factory on 1 January 20X3 for $180,000. It is depreciated monthly on a straight line basis over 50 years. On 1 July 20X6 the factory was revalued to $223,200.
What should the depreciation charge be for the year ended 31 December 20X6?How we do that, sir?
Please do not simply ask test questions and expect a full answer.
You must have an answer in whatever book you found the question, and so you should ask about whatever it is in the answer that you are not clear about.
The original annual depreciation was 180,000 / 50 = 3,600. Therefore for the first six months of 20X6 the charge will be 3,600 / 2 = 1,800.
As at 1 July 20X6, the factory had been owned for 3.5 years, and therefore the remaining life is 50 – 3.5 = 46.5 years. Therefore the new annual depreciation is 223,200 / 45.5 = 4,800. Therefore for the second six months of 20X6 the charge is 2,400.
Oh, sorry there is these answers
$4,464
$4,226
$4,800
$4,200
But I guess its 2400+1800 = 4200 and thats the answer but why 3600 is divided by 2 though? and how the factory had been owned for 3.5 years as at 1 July 20X6 ?You should be using a Revision Kit from one of the ACCA approved publishers – they tell you what the correct answer is!!
3,600 is the depreciation per year – we divide by 2 to get the depreciation for the 6 month period after the revaluation (just as we divide 4,800 by 2 to get the depreciation for the 6 month period before the revaluation).
If it was bought on 1 January X3, then they owned it for X3, X4, X5, and six months of X6 by the date of the revaluation on 1 July X6. That comes to 3.5 years.
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