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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?
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.
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 ?
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.
November 3, 2022 at 5:53 am
Hi John, thank you for the awesome lecture.
November 3, 2022 at 9:28 am
Thank you for your comment 🙂
January 9, 2022 at 7:34 pm
Hi, if using %reducing balance method, and £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
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.
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.
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.
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?
June 3, 2021 at 6:37 am
If it given as a % of cost then we ignore the residual value when calculating the depreciation.
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 🙂
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).
November 14, 2020 at 3:31 pm
Hi John, thank you so much for the lecture.
November 14, 2020 at 4:51 pm
Thank you for the comment 🙂
June 15, 2023 at 9:39 am
This is so wholesome 🙂
June 15, 2023 at 5:20 pm
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?
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)
October 16, 2020 at 7:01 am
Thank you John.
October 16, 2020 at 8:02 am
You are welcome 🙂
September 7, 2020 at 4:06 pm
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.
September 7, 2020 at 4:09 pm
I asked this question in context of straight line method of depreciation.
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.
April 15, 2020 at 11:13 pm
Now understanding reducing balance method
April 11, 2020 at 6:29 pm
Excuse sir what will happen if didn’t mention the purchase month or date of asset
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?
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.
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.
December 13, 2019 at 9:15 pm
why in this example did you not account for the 9 months while calculating depreciation?
for the first year*
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?)
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?
October 15, 2019 at 3:18 pm
If it was bought on 30th April, then yes – you start counting from May 🙂
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.
November 7, 2019 at 7:42 am
Noted with thanks:)
November 7, 2019 at 8:06 am
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.
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.
October 11, 2018 at 6:36 am
Thank you John for clarifying it.
October 11, 2018 at 8:32 am
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!
September 23, 2018 at 8:03 am
The cost is 20,000. 10% x 20,000 = 2,000.
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
June 15, 2023 at 9:47 am
Haha yes, i thought the same initially too 🙂
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