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Hie Sir l need some help with this question:
In the Plant and machinery (at cost) account we have the following figures:
20X5
Jan 1 balance 240000
Mar 31 transfer to disposal account 60000
Jun 30 purchase of plant 160000
Dec 31 balance 340000The company’s policy is to charge depreciation at 20%per year on rh straight line basis with proportionate depreciation in the yrs of purchase and disposal.
What should the depreciation charge be foethe year ended 31 December 20X5?
My question is why do we hv to calculate depreciation for disposal using the opening balance of 240000 instead of the disposal cost of 60 000
When calculating the charge for the year, for the first 3 months (Jan 1 to Mar 31) the cost was 240,000 and so depreciation will be calculated on 240,000 for 3 months.
On Mar 31 the cost of the assets left fell to 180,000 and so depreciation will be calculate on 180,000 for 3 months (Apr 1 to Jun 30).
On Jun 30 the cost increased to 340,000 and so depreciation will be calculated on 340,000 for 6 months (Jul 1 to Dec 31)
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