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Hi, John.
Please let me understand the below..
A company’s policy is to charge depreciation on plant and machinery at 20% per year on cost, with proportional depreciation for items purchased or sold during a year.
The company’s plans and machinery at cost account for the year ended 30 September 2013 is shown below.
PLANT AND MACHINERY – COST
2012 2013
1 Oct Balance 200,000 30 Jun Transfer disposal account 40,000
30 Sep Balance 210,000
2013
1 Apl Cash-purchase of plant 50,000What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 2013?
a. $43,000
b. $51,000
c. $42,000
d. $45,000The answer is a. I really do not understand on the answers sheet…
The year is 1 October 2012 to 30 September 2013.
From 1 October 2012 to 1 April 2013 (6 months) the cost was 200,000 and so the depreciation is 6/12 x 20% x 200,000 = 20,000.
On 1 April 2013, as assets was bought for 50,000 and so the cost became 250,000.
From 1 April 2013 to 30 June 2013 (3 months) the depreciation is therefore 3/12 x 20% x 250,000 = 12,500
On 30 June 2013, an asset that had cost 40,000 was sold, and so the cost because 210,000.
From 1 July 2013 to 30 September 2013 (3 months) the depreciation is therefore 3/12 x 20% x 210,000 = 10,500.
So the total depreciation = 20,000 + 12,500 + 10,500 = 43,000.
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