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Depreciation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Depreciation

  • This topic has 5 replies, 3 voices, and was last updated 3 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • October 6, 2020 at 10:09 am #587456
    lingru
    Member
    • Topics: 4
    • Replies: 3
    • ☆

    For the following question, I have a doubt that how do we know which method of depreciation should be used?

    – Liza bought a guillotine for her framing business for $20,000 on 1 July 20×7. She expected the guillotine to have a useful life of ten years and a residual value of $500. On July 20×8, Liza revised these estimates and now believes the guillotine to have a remaining useful life of 5 years and no residual value.

    What was the depreciation charge for the year ended 30 June 20×9?

    The answer is $3610.

    I really confusing for which method of depreciation we should use? while the question didnt mention which method. If I use straight line method, it would be $4000. So, apparently that is reducing balance. Wondering is there any hint words in the question implies that is reducing balance method?

    October 6, 2020 at 3:57 pm #587482
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    Please do not post the same question twice!

    It cannot be reducing balance depreciation because you are not given a %.

    The depreciation charge for the year ended 30 June 20X8 is (20,000 – 500)/5 = $1,950.

    Therefore the net book value as at 30 June 20X8 is 20,000 – 1,950 = $18,050.

    The remaining useful life is 5 years, so the depreciation charge for the year ended 30 June 20X9 is 18,050 / 5 = $3,610

    Have you watched my free lectures on depreciation? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

    December 15, 2021 at 8:14 am #644278
    fathima92
    Member
    • Topics: 2
    • Replies: 9
    • ☆

    Sir,
    I did not understand the calculations on depreciation ie, the first calculations
    20000-500/5=1950

    How did you get this answer

    December 15, 2021 at 8:47 am #644284
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    It was a typing error – it is dividing by 10 and not 5, because the original useful life was 10 years.

    The rest of what I typed is correct 🙂

    December 15, 2021 at 9:20 am #644286
    fathima92
    Member
    • Topics: 2
    • Replies: 9
    • ☆

    I figured it out thank u so much

    December 15, 2021 at 4:10 pm #644348
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54668
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘Depreciation’ is closed to new replies.

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