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Carrying Value with residual value

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Carrying Value with residual value

  • This topic has 4 replies, 2 voices, and was last updated 1 year ago by alawi sayed.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • July 7, 2021 at 7:57 pm #627180
    alawi sayed
    Participant
    • Topics: 152
    • Replies: 166
    • ☆☆☆

    Hello Sir,

    In the following question of Bpp kit For the calculation of the carrying value they deducted the residual value from the cost and then they minus the depreciation is that correct,

    Thanks,

    Isaac & Joseph Co purchased new machinery on 1 January 20X5 for $1,000,000. It has a residual value of
    $200,000, with the useful life deemed to be 8 years. The plant is depreciated on a straight-line basis.
    Tax allowances of 50% of the cost of the asset can be claimed in the year of purchase, as depreciation is not
    allowed for tax purposes. The rate of income tax is 30%
    Identify whether a deferred tax asset or liability should be recognised at 31 December 20X5 and at what
    amount?
    Asset or Liability Amount ($)
    Asset 90,000
    Liability 82,500
    60,000

    Answer

    Asset / liability Amount ($)

    Liability 60,000

    As the tax base is less than the accounting carrying amount (more tax benefit has been taken), then deferred
    tax liability is required:
    Carrying amount $’000
    Cost of asset 1,000
    Residual value (200)
    Depreciable value 800
    Depreciation charge
    800/8 years
    (100)
    Carrying amount at 31 December 20X5 700

    Tax base
    Cost of asset 1,000
    Less Y1 tax allowance at 50% (500)
    500
    Difference $700,000-$500,000 200
    Tax liability 30% x $200,000 60

    July 10, 2021 at 9:34 am #627329
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    Hi,

    Yes to work out the carrying value then we need to deduct the depreciation. the depreciation expense is the cost less residual value divided by the useful life.

    Thanks

    July 10, 2021 at 11:18 am #627358
    alawi sayed
    Participant
    • Topics: 152
    • Replies: 166
    • ☆☆☆

    Thanks Sir,

    I agree for the calculation of the depreciation we deduct the residual value from the cost then we divide by the useful life ,but what they have done for the calculation of the carrying value

    Cost-residual value-depreciation is that ok .

    Thanks,

    July 14, 2021 at 8:15 pm #627749
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6440
    • ☆☆☆☆☆

    No, that is incorrect. The carrying value should be 900 at the end of the first year (i.e. 1,000 cost less 100 depreciation for the year).

    Thanks

    July 15, 2021 at 8:54 am #627824
    alawi sayed
    Participant
    • Topics: 152
    • Replies: 166
    • ☆☆☆

    Thanks a lot .

  • Author
    Posts
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