Hi all, in Example 2, Ecuador: it states they revise the life expectancy of the asset to 5 yrs on 31 Dec 2014, one full year before the answer. Wouldn’t we apply the first revised depreciation to 2014, and then 2015? That provides an answer of 2x $2.5m and 2x $4m. Remaining Value = $12m.

This is where CIMA trip me up in exams, the questions can always be interpreted in many ways?

PS Loving the OpenTuition lectures. Thanks Chris !!!

Oops! There is a slight mistake in my answer but it isn’t when applying the original 20% reducing balance. Residual value is not relevant to reducing balance depreciation.

The mistake is in calculating the new depreciation charge under straight line where I didn’t deduct the 10,000 residual value from the 26,214 carrying value at the date of change in method. I was too engrossed in the example and had forgotten that the residual value was there.

Can I clarify the answer to example 3. I made it 1624 per annum due to deducting RV of 10000 from the CV then dividing by 10 years useful life (not 5 years)

Hi Per Lidia above I would have taken the 10k residual val from the 80k before calculating the reducing bal to Yr 5, as such Yr 5 CV = €22,937.6 and Dep Chg Yrs 6 – Yr10 = €4,587.52. Can you explain why the residual val was omitted in video? Thanks Ward

I don’t think so, the residual value is used when the company calculates this 20% %reducing_balance. (ps. the “company” has actually made an error, the 20% should have been 18.775% – this is the correct % that leaves RV of 10K after 10 years – but I guess for the exercise is simpler to round it up to 20%). After this calculation the RV is not taken into account for the CV calculation, only the %.

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1979stchristopher says

Hi all, in Example 2, Ecuador: it states they revise the life expectancy of the asset to 5 yrs on 31 Dec 2014, one full year before the answer. Wouldn’t we apply the first revised depreciation to 2014, and then 2015? That provides an answer of 2x $2.5m and 2x $4m. Remaining Value = $12m.

This is where CIMA trip me up in exams, the questions can always be interpreted in many ways?

PS Loving the OpenTuition lectures. Thanks Chris !!!

P2-D2 says

Hi,

Oops! There is a slight mistake in my answer but it isn’t when applying the original 20% reducing balance. Residual value is not relevant to reducing balance depreciation.

The mistake is in calculating the new depreciation charge under straight line where I didn’t deduct the 10,000 residual value from the 26,214 carrying value at the date of change in method. I was too engrossed in the example and had forgotten that the residual value was there.

Thanks

baroquechick86 says

Hi,

Can I clarify the answer to example 3. I made it 1624 per annum due to deducting RV of 10000 from the CV then dividing by 10 years useful life (not 5 years)

antonycima2 says

So the correct answer should be ( $26,214 -$10000) / 5 = $4553.6

edit says

I have the same query re: residual value.

Thanks

warddunphy says

Hi

Per Lidia above I would have taken the 10k residual val from the 80k before calculating the reducing bal to Yr 5, as such Yr 5 CV = €22,937.6 and Dep Chg Yrs 6 – Yr10 = €4,587.52. Can you explain why the residual val was omitted in video?

Thanks

Ward

lidcar says

Hello,

I would like to ask you shouldn’t the residual value be deducted from original value when CV is calculated?

Thank you.

antonycima2 says

I don’t think so, the residual value is used when the company calculates this 20% %reducing_balance.

(ps. the “company” has actually made an error, the 20% should have been 18.775% – this is the correct % that leaves RV of 10K after 10 years – but I guess for the exercise is simpler to round it up to 20%).

After this calculation the RV is not taken into account for the CV calculation, only the %.