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FA Chapter 6 Questions Depreciation
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In question no. 5, do we have to take the residual value even after two years? But why? I thought it would be zero since nothing was mentioned regarding residual value.
Unless the question says that the expected residual value has changed after the change in the useful life, we always assume that the residual value remains the same, so in this question remains at $7,000.
Hello John,
Thank you for the great work. My question is for question 2, would it make a whole lot of a difference if the machine was bought and not sold on January 1st? How?
Thanks
Yes it would. Because it was sold the depreciation was only on the assets remaining. If it had been bought then there would have been more assets to depreciate.
hi john
I hope you keeping well. First thing first is that I really appreciate the good work you are doing and I hope you will be keeping it up.
I have got 2 silly questions to ask its either I am thinking too much or it could be one of those situations where you will pick up on challenging stuff but would be lacking to understand the easy one.
question1. how would i know to that I have to calculate accumulated depreciation before I calculate year end depreciation expense for certain year. In some questions in Bp, they will calculate accumulated depreciation first and then depreciation expense to work out deprecation charge for the year and then in certain questions they will just calculate depreciation expense straightway without calculating acc depreciation. What’s the trick?
Questions 2. Land (5m) and buildings at cost 35million y/e 01/10/2008
accumulated depreciation buildings at 01/10/2008 20 million
Both land and building were revalued on 31/12/2008 to land 8milion and building 39million
Company year end 30th September 2009
what will be the nbv of land and building after revaluation and depreciation at year end 2009.
Thanks in advance
You must ask questions like these in the Ask the Tutor Forum and not as a comment on a test 馃檪
Hi Sir, I have a question for Q2. Why do we need to calculate depreciation expense after the machine is sold? I think the answer should be $4,000. Thanks.
The machine sold was only one of their machines. The machines remaining still need to be depreciated. Read the question again very carefully.
Thanks sir, useful test.
Q2 was quite dangerous. I understood only after I read your working after the quiz. First I thought we had to calculate in relation to that one machine. What a distraction. But we should have noticed, since the question was asking about the accumulated depreciation of a time period after the machine was sold. And the accumulated depreciation of all machines, 25,000 was just a distractor too. You did not even use it in your workings.
What I did not grasp was the Question 4. If the machine was sold at beginning of year 4, why did we not take that full year into account as well for depreciation- as some questions do say they charge the full year at time of selling (otherwise you in the lecture just take eg months/12 x cost x 20% ; and calculate depreciation of the months used for the purchase or selling year).
So really let me know, how to know 3 or 4 years ?
Questions often say a full years depreciation in the year of purchase, but never a full years depreciation in the year of sale. (What they do sometimes say is ‘no depreciation in the year of sale’).
Here it said nothing and so we time apportion the depreciation. Usually we apportion to the nearest month. Here it is 0 months to the nearest month (and obviously we would not depreciation in the year of sale when it sold at the very start of the year – it would be silly).
It is depreciated for 3 years.
Thankyou.
Hi John
Q4- Why is this a loss and not a profit? If u do the T-account:
DR Asset 2400
CR Acc dep 1228.80
CR Cash 1200
Difference is on the DR side=28.80 profit?
Same method as Q3 where 1,067.84 was the profit ( 5000 cash & 8067.84 acc dep)
Why is this different?
The accumulated depreciation is not 1228.80 !!
The carrying value (net book value) is 1228.80. It is sold for 1200.00. Therefore a loss on disposal of 28.80.
Got it, got it, got it!!!! Thanks
You are welcome 馃檪
sir i have problem in Q3 there says that depreciation is charged in year of purchase and non in the year of sale so why the depreciation of 2012 are included in accumulated depreciation
The question says that the company’s year end is 31 January each year.
The car was sold on 31 March 2012 which is during year ended 31 January 2013, and no depreciation has been charged for year ended 31 January 2013.
dear John
In question 3 year ending is 31st jan and asset is purchased in starting of jan so why we haven’t consider the 1 month depreciation
that is from 1 jan to 31 jan 2008 why we haven’t consider this and instead of this we have taken whole year depreciation
Because the question specifically says “a full years charge in the year of purchase’, which (as I explain in my free lectures) is very common both in real life and in the exam.
Hello sir, I am having a problem in Q5 too, the questions says two years later i.e. after 2001 and 2002 which basically means thats its at the end of 2002 so there is only one year remaining so why is the 15,000 still multiplied?
It was bought at the start of 2000, so 2 years later is the start of 2002.
Hello sir, John. In Q5, why do we not add the accumulated depreciation of 2000 and 2001 for 2002 when the useful life has been revised? why shouldn’t it be 52,000-(15000+18000)?
Dear John
I still have a problem in understanding question 2. Are they two different machines? on October 31st the machine cost was $120,000 while on April it has original cost of $30,000.
thanks a lot
regards
Laizer
They cannot be different machines!! The total cost of all the machines at the start of the period was $120,000. They then sold one that had cost $30,000 and so the cost of the machines left is then $90,000.
Please help! The machine which cost $30000 was bought in 2012 which means it lasted 5 Years.how come we are using 10 months?
hello sir, regarding question 5 can you please explain me why we subtracted 52000 twice by 15000 ? shouldn’t it be depreciated once since it was sold on 2003 ?
It was sold at the end of 2003, and so it was used throughout 2003 and depreciation will be charged for the whole of 2003.
I am also confused on this part. The depreciation for the whole of 2013 should be 15,000 not (15,000 * 2) so I still don’t understand why they multiplied.
It was revalued at the start of 2002. Therefore there were two more years depreciation by the end of 2003 – depreciation for 2002 and 2003.
Hi sir,
I also have a question on number 5.
Shouldn’t the NBV after 2 years be 63000 since the the residual value was marked at 7000 ?
Hi john. Can you please explain me question 5 a bit? I don’t know why we take NBV when calculating the depreciation for the remaining three years. I thought the question was asking us to do straight line method depreciation and for what I have known, we normally don’t take NBV when calculating depreciation in this method.
When we change the useful life, we need to then spread the NBV at that stage (less any residual value) over the remaining life.
(Otherwise, if you think about it, the total depreciation charged is not going equal the original cost less the residual value, and it total it must be equal)
Thank you sir. I got it now.
In question 4 it says the car was sold at the start of year 4, however we are not charging depreciation for the year although we sold it as the question says at the start of year 4. Thanks for all the work sir
That is correct – we will not charge depreciation in year 4 because it was sold at the start of the year.
bannsri: That is fine 馃檪
Dear sir for Q2
I did 20%3000=6000
And then 1 subtracted the this 6000 from the 25000 dep at 31oct 3013 and I still got the answer as 19000 is it right or just a coincidence
Sir I was told to calculate from 2008 to 2012
Why should I calculate an other year which may be 2013 and not charge depreciation I am confused
Wow ?
Is ‘wow’ supposed to be a question?
Lol may be . Wow ?
You just read the question very well. the question says their year ends on 31 January. They have a policy to charge full years depreciation on the year of purchase and none in the year of sale. Since the Car was purchased on 1 January, so you have to consider 1 February 2007- 31 January 2008 as your first year and then take depreciation for the remaining 4 years. I also faced the same issue but I got it corrected after reading the question again. This Question tells us how important is to read every single thing mentioned on the question.
Sorry sir I mean Q3
Sir in Q2 i calculated to the last year which is 31 January 2012 and found 983.04 as result
Why you calculated the same year again with result of 1067.84
I’m confused
Thanks
Dear John,
I watched all lectures about depreciation. But I am confused with question 2. I can not understand why cost of machine is same as in april 2012. What about depreciation of previous period? Why we don’t reduce the cost of machine for previous period if company have depreciation policy?
The depreciation in this question is charged on cost. The cost of a machine does not change (there is accumulated depreciation but this does not affect the original cost).
Thank you very much John.
I am not understand Qn 3, the Depreciation is charged fully in the year of purchase and none in the year of sale. I am confused, I thought none means nothing is charged in the year of sale. Please help me to understand.
Nothing has been charged in the year of sale.
The year end is 31 January each year, and so the year of sale is the year ended 31 January 2013.
but you have, it was sold31 march2012
sorry i figured it out
I am glad that you figured it out 馃檪
Dear Sir,
I’m a little confuse with Q2. Why the machince cost 30.000$ wasn’t depreciated in period from 1st November 2013 to 1st January 2014? It wasn’t sold so it was still the company’s assets and should be depreciated, right?
I’m not good at English, so if there are any grammatical errors, please ignore
It was depreciated – don’t forget that the year end of this company was not 31 December, but was 31 October. So the year you are dealing with ia from 1 November 2013 to 31 October 2014.
Oh, I understand now. Thank you, Sir!
You are welcome 馃檪
The question says it was sold on 1 Jan 2014,
if the end of year of this company is fall on 31 Oct ,
isn’t that we only need 2 months depreciation ?
Nov 2013 + Dec 2013 = 2 months ,
and there shold be no depreciation after the machine wa sold .
is it a typo that bought became sold ?
because the answer only make sense when the sold change to bought,
that’s why the calculation included the 10 months depreciation expenses of the machine .
Ah…..now i see where is my misunderstanding ,
im too tire ……. hzzzzz
pls ignore my posts regarding to Q2,
I Solved .
thanks Sir.