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Hi Mike,
In previous questions I have always ADDED the Depreciation amount from Income statement to b/f accumulated depreciation figure and then minused the c/f to get cash paid during the period.
I have come across a question in my text book and they have
accumulated depreciation b/f – 290
(Depreciation) – (40)accumulated depreciation c/f (340)
= (90)Under what circumstance would this be the correct equation?
(Question from old 2014 BPP text book)
Many thanks
No matter what magic I may try to weave, there is no combination of 290, 40 and 340 that I can arrive at a sensible explanation
Are you sure that you have copied the figures down correctly?
What’s the name of the question – if it’s a past exam question I may be able to find it on the internet
Hi Mike,
No it was just a practice question.
What I was trying to ask is under normal circumstances when we have incurred depreciation, we need to add to the accumulated depreciation account.
Therefore:
accumulated depreciation b/f – 290
(Depreciation) – 40290 + 40 = 330
Under what circumstances will we
290 – 40 = 250 reducing the accumulated depreciation.
Could this arise to revaluation etc?
Thank you
It could be a revaluation but more likely it’s a disposal
Say we sold for $500 an asset that had cost $600 and had been depreciated by $40 so had a carrying value of $560
In the statement of cash flows we shall show in Investing Activities proceeds of sale for $500 and in the individual accounts we’ll need a disposal account
That will be debited with the $600 cost that we are getting rid of, it will be credited with the depreciation of $40 and it will be credited with $500 proceeds
That leaves us with a loss on disposal of $60 and that loss will be added back in the Operating Activities section
OK?
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