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Depreciation Example 2 – ACCA Financial Accounting (FA) lectures

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Comments

  1. sairogrg says

    July 23, 2023 at 12:30 pm

    So if we have scrap value and total cost of a car along with it’s useful life ? But we have also have been given rbm % , we have to find out rbm depreciation charge? How do we solve these type of question?

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    • John Moffat says

      July 23, 2023 at 4:19 pm

      With reducing balance depreciation, any expected scrap value mentioned is irrelevant and is ignored. It is always as I explain in my free lectures.

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  2. sairogrg says

    July 23, 2023 at 12:24 pm

    I have a problem. I can understand the concept well but when I try to apply it in actual I cannot solve it. Can some one help me with this problem ?

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    • John Moffat says

      July 23, 2023 at 4:20 pm

      I cannot help unless I know the problem you are having!!
      Best is to type out one of the questions you are having a problem with (but do not type it here as a comment on a lecture – type it out in the Paper FA Ask the Tutor Forum.

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  3. ammii says

    November 3, 2022 at 5:53 am

    Hi John, thank you for the awesome lecture.

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    • John Moffat says

      November 3, 2022 at 9:28 am

      Thank you for your comment 馃檪

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  4. rguyver says

    January 9, 2022 at 7:34 pm

    Hi, if using %reducing balance method, and 拢0 scrap value, do you carry on depreciating forever (assuming you still own the asset), or at some point do you just depreciate the final amount when it is v small? If so what are the rules around that? Thanks

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    • John Moffat says

      January 10, 2022 at 7:23 am

      There are no rules as such, but once it gets small then you write it down to zero.

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      • lean293 says

        October 9, 2022 at 1:51 pm

        As I know, in real life, companies usually use a combination of both reducing balance and straight-line method. For example, companies can apply reducing balance for the first few years of the life of the asset, and at a certain point adopt straight-line method to the rest of the life of asset (thus allowing it to depreciate completely).

        Hope this helps.

      • John Moffat says

        October 9, 2022 at 4:49 pm

        That is not true. They must continue to use the same method each year and the same method for all assets of a similar type. If they do decide to change the method then they must state that they have changed and must also show the effect of the change as a prior year adjustment.

  5. Abreakzpio says

    June 3, 2021 at 6:00 am

    Is it possible that using the straight-line method, where the annual charge is the percentage of the original cost the asset would have a scrap value?
    If yes when do we substrate the residual value? Before or after we have found the percentage of the cost of the asset?

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    • John Moffat says

      June 3, 2021 at 6:37 am

      If it given as a % of cost then we ignore the residual value when calculating the depreciation.

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  6. nabeela2792 says

    March 19, 2021 at 2:29 pm

    Hi
    Suppose in the working of
    year 2
    We show in the
    SOFP
    Cost $ 12000 instead $15000
    Acc Deprn $2400

    Year 3
    SOFP
    Cost $9600
    Acc Deprn $1920

    will it be fine or we have to keep the original cost always
    and show The acc depreciation changing?

    Thank you 馃檪

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    • John Moffat says

      March 20, 2021 at 8:52 am

      It would not be fine. The cost must always show the original cost and the accumulated depreciation must show the total depreciation (accumulated means totalled).

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  7. Nguyen says

    November 14, 2020 at 3:31 pm

    Hi John, thank you so much for the lecture.

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    • John Moffat says

      November 14, 2020 at 4:51 pm

      Thank you for the comment 馃檪

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      • uzair92 says

        June 15, 2023 at 9:39 am

        This is so wholesome 馃檪

      • John Moffat says

        June 15, 2023 at 5:20 pm

        馃檪

  8. Sanweyne says

    October 14, 2020 at 6:27 pm

    I confused how percent coming? Example, Machine Cost 15,000 and reducing line method 20% so can I change this percentage by value, I want to understood the originally and can change percentage value?

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    • John Moffat says

      October 15, 2020 at 8:54 am

      As I do state in the lectures, the business can use whatever % they want – whatever they think is the most sensible.
      There is no rule as to what % to charge.
      (In exam questions you will obviously be told what % to use)

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      • Sanweyne says

        October 16, 2020 at 7:01 am

        Thank you John.

      • John Moffat says

        October 16, 2020 at 8:02 am

        You are welcome 馃檪

  9. shakir7385 says

    September 7, 2020 at 4:06 pm

    Hi John,

    For some assets we keep the scrape value separate then we charge depreciation on (Cost minus scrap value). However, for some assets we do not keep the scrap value aside. In both cases, the asset remains of some value even after full depreciation. So why is it optional to determine (or not determine) the scrap value of an item.

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    • shakir7385 says

      September 7, 2020 at 4:09 pm

      I asked this question in context of straight line method of depreciation.

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      • John Moffat says

        September 7, 2020 at 5:01 pm

        How can you possibly determine what the sale value will be some years in the future? If a business wants to estimate what it will be then they can – it is their choice – but it would be ridiculous to force them.
        Remember that the only purpose of depreciating is to spread the cost of using the asset against the profit as it is being used.

  10. kandiero says

    April 15, 2020 at 11:13 pm

    Now understanding reducing balance method

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  11. herish says

    April 11, 2020 at 6:29 pm

    Excuse sir what will happen if didn’t mention the purchase month or date of asset

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  12. AWelshGiraffe says

    April 5, 2020 at 12:12 pm

    Hi, I realise this won’t come up in an exam I’m just curious what would happen if you decided to change depreciation policy. If you can’t have different styles of depreciation on the same SOFP would business have to recalculate all their accumulated depreciation?

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    • John Moffat says

      April 5, 2020 at 3:32 pm

      Yes – if a business changes its policy then they should recalculate as though that policy had always been in place.

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    • miggyman says

      May 24, 2020 at 8:56 pm

      I’m on AAT level 3 Advanced bookkeeping, I am watching ACCA videos as well.
      It stated in the book businesses only tend to change their policies on an annual basis, but tend to stick to the same method every year. It states businesses constantly review the situation annually.

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  13. hayaafarhad says

    December 13, 2019 at 9:15 pm

    why in this example did you not account for the 9 months while calculating depreciation?

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    • hayaafarhad says

      December 13, 2019 at 9:15 pm

      for the first year*

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      • John Moffat says

        December 14, 2019 at 10:04 am

        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?)

  14. ojonemile says

    October 15, 2019 at 1:47 pm

    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?

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    • John Moffat says

      October 15, 2019 at 3:18 pm

      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.

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      • ojonemile says

        November 7, 2019 at 7:42 am

        Noted with thanks:)

      • John Moffat says

        November 7, 2019 at 8:06 am

        You are welcome 馃檪

  15. francihco says

    October 9, 2018 at 7:22 am

    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.

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    • John Moffat says

      October 9, 2018 at 8:02 am

      No – with reducing balance, the residual value is irrelevant for the depreciation calculation. It is only relevant when doing straight-line depreciation.

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      • francihco says

        October 11, 2018 at 6:36 am

        Thank you John for clarifying it.

      • John Moffat says

        October 11, 2018 at 8:32 am

        You are welcome 馃檪

  16. nghuyquan94 says

    September 22, 2018 at 3:31 pm

    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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    • John Moffat says

      September 23, 2018 at 8:03 am

      The cost is 20,000. 10% x 20,000 = 2,000.

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    • konichan says

      September 29, 2019 at 6:04 pm

      At the first time I was confused too. But later i recognized that the cost is $20,000 not cost divided $20,000

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      • uzair92 says

        June 15, 2023 at 9:47 am

        Haha yes, i thought the same initially too 馃檪

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