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Hi,
I am looking at an example from F3 book and the solution looks weird, could someone please read it and if you could tell me:
1. Why do we multiply depr. by 3yrs to find the NBV value in yr 5, when I think there are 4 yrs passed before 5?
2. Why the example says there’s no residual value and nevertheless they include 30 000 again to find the depr. in yr 5?
Example:
A machine was purchased three years ago on 1 January Year 2. It cost $150,000 and
its expected life was 10 years with an expected residual value of $30,000.
Due to technological changes, the estimated life of the asset was re-assessed during
Year 5. The total useful life of the asset is now expected to be 7 years and the
machine is now considered to have no residual value.Solution:
Original depreciation = $150,000 – 30,000/10 = $12,000 per annum
Net book value at start of year 5 = $150,000 – (12,000 × 3) = $114,000If the total useful life is anticipated to be 7 years then there are four years remaining.
Depreciation charge for year 5 = $114,000 – £30,000/4 = $21,000Thank you very much for a check in this example!
MP
I don’t know which book that this came from, but with regard to the three years, the question says in the first line that it was purchased three years ago, in year 2.
As regards the 30,000, if you have copied the question correctly then they should not have brought in the 30000 in their calculation of the new depreciation.
Hallo,
The “purchased three years ago, in year 2” looks like a new terminology to me. If I have to calculate the years of depreciation up to year 5, this makes four years, but since they mention that something has happened in year 2, then I start counting the years of depreciation as Jan year 2 = 1 yr, Jan year 3 = 2nd yr, Jan year 4 = 3rd year, now we have reached the end of year 4, but there are only 3 years of depreciation. Is this correct? Why do we start depreciation from the second year, is it only because of our books, we don’t include the year 1, why not, isn’t there depreciation in year 1 as well?
Thank you for some input!
MP
If it was only purchased three years ago then there can only be three years of depreciation. You do not depreciate for years when you had not even owned the asset!
However, it is a very odd way to word the question. Again, I do not know which book you got the questions from but I do not believe that the real exam will word it that way.
buddy dn confuse yourself and just move onto next one there are often silly mistakes in exam kit
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