IAS 12 – Example (accelerated capital allowances) – ACCA Financial Reporting (FR)
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Why didn’t you deduct the residual value from the asset’s value when calculating depreciation for the reducing balance method?
With reducing balance method we do not substract any residual value from the original cost.
I hope this helps.
Hello Chris. In the first example, the question says capital allowances are available at 25pcnt reducing balance. Why did you still use straight line method to depreciate the asset.
Please i need a reply.
It’s reducing balance
Reducing balance is specified for Capital allowance (= for Taxation base).
Accounting depreciation type is not specified here but by default it’s meant to be straight-line basis I believe.
So for Carrying value (for accounting) we use straight-line method, and for Tax base (for Taxation purposes) we use reducing balance method at 25%
And even thought straight-line method for CV is not said specifically, you can guess that it should be so from given information. They give us residual value and estimated life. You can only calculate depreciation with straight-line method using this info
Hi. The straight-line method was for the accounting depreciation. Tax depreciation/allowance was on reducing balance. There are both different.
Really good lecture, detailed content is very helpful
Can’t agree more!