If it was bought on 30th April, then yes – you start counting from May 馃檪
But do appreciate, that this only applies if it is pro-rata depreciation, and also this is only for the exam – in practice you can have any policy you want.
Dear John! Perhaps I missed this in one of the lectures, but, on the reducing balance method the amount to be depreciated should be = original cost – residual value, (same as in the straight line method) right? It’s just that I couldn’t find in any of the examples a residual amount with the reducing balance method and I don’t want to take it for granted.
No – with reducing balance, the residual value is irrelevant for the depreciation calculation. It is only relevant when doing straight-line depreciation.
Excuse me sir, i still dont understand how 10%*(cost / 20.000) = 2.000. What is the value of “cost”, sir? I think the word “cost” mean the cost of the car? = 20.000, or i get it wrong somewhere?
Looking forward to hearing your explain. Thank you sir!
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why in this example did you not account for the 9 months while calculating depreciation?
for the first year*
Because the question says that the policy is to charge a full tears depreciation in the year of purchase, which is a very common policy.
(I assume you have downloaded the free lecture notes and so have the question in front of you?)
Thank you Sir. You said to do a pro rata to the nearest month. In a situation where the date is, say, 30th April,do we take May as the nearest month?
If it was bought on 30th April, then yes – you start counting from May 馃檪
But do appreciate, that this only applies if it is pro-rata depreciation, and also this is only for the exam – in practice you can have any policy you want.
Noted with thanks:)
You are welcome 馃檪
Dear John! Perhaps I missed this in one of the lectures, but, on the reducing balance method the amount to be depreciated should be = original cost – residual value, (same as in the straight line method) right? It’s just that I couldn’t find in any of the examples a residual amount with the reducing balance method and I don’t want to take it for granted.
No – with reducing balance, the residual value is irrelevant for the depreciation calculation. It is only relevant when doing straight-line depreciation.
Thank you John for clarifying it.
You are welcome 馃檪
Excuse me sir, i still dont understand how 10%*(cost / 20.000) = 2.000. What is the value of “cost”, sir? I think the word “cost” mean the cost of the car? = 20.000, or i get it wrong somewhere?
Looking forward to hearing your explain. Thank you sir!
The cost is 20,000. 10% x 20,000 = 2,000.
At the first time I was confused too. But later i recognized that the cost is $20,000 not cost divided $20,000