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FA Chapter 6 Questions Depreciation

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  1. 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

  3. 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.

  4. 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 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.

  7. 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?

  8. 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.

  10. 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.

  11. 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

  17. 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?

  18. 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.

  19. 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

      • 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 .

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