[Yordan]

Hi

No problem at all.
30 september is the company’s year end

01.10.2005 Machine aquired for £920

Estimated life in hours – 6000
total hours used 30.09.2006 – 1200
total hours used 30.09.2007 – 1800
total hours used 30.09.2008 – 850

Residual value £20

30.09.2006 Depreciated with (180) – this is calculated using hours used, which I am ok with. [(920 – 20) x 1200/6000]

30.09.2007 Depreciated with (270) – again using the same method of depreciation and the result is Acc depr (450) as per the extract from S of FP in the answers. [(920 -20) x 1800/6000]

01.10.2007 Upgrade at a cost of £200. The upgrade increased the estimated remaining life of the machine at 1.10.2007 to 4500 hours and the residual value was revised to $40.

Valuation – This is how it is shown:
Original cost ——————— 920
Depreciation to 30.09.2007 – (450)
Carrying amount ————— 470
Upgrade ————————– 200
Valuation ————————– 670

30.09.2008 This is where I get confused with the depreciation and the extract. The answer shows [(670 – 40) x 850/4500], which is 119 as per the last years extracts.

I see the logic in all this, but I cannot link it to the double entry.

Hopefully this is enough info regarding the question.

Thanks.

[Yordan]

Hello again and thank you for the prompt answer. I was asking this, because I was doing a practice question (No. 15 Deaing BPP practice and revision kit) which I couldn’t fully understand. It required an extract to be prepared from the S of FP for 3 years with an upgrade to the PPE in the second year for 200. The answer showed extracts from 3 years as such:

——————–30.09.2006———30.09.2007———–30.09.2008
PPE—————-920——————-920———————-670
Acc dep———-(180)——————(450)——————-(119)
Carrying V——–740——————-470———————551

Basically what was done as I see it for the upgrade:
Dr acc dep 450
Cr PPE 450

Dr PPE 200
Cr Rev Res 200

119 is the depreciation charged on the carrying value of 670 for the last year.

Please correct me if I am wrong, because after today’s work day I feel exhausted and I do not trust my F7 skills now 🙂

P.S. I would like to thank you for the awesome work that you do here for all of us and to say that I have successfully passed F 4,5,6 with mainly using this website.

[Author]

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