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Depreciation

Forums › FIA Forums › FA2 Maintaining Financial Records Forums › Depreciation

  • This topic has 2 replies, 3 voices, and was last updated 1 year ago by Ken Garrett.
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  • January 3, 2022 at 3:43 am #645205
    Mraz
    Participant
    • Topics: 1
    • Replies: 0
    • ☆

    In the year to 30 November 2009, Lui accounted for $7,000 of expenditure on machinery repairs as the cost of a new machine. Lui depreciates machinery on a straight-line basis over 10 years and charges depreciation for a full year in the year an asset is acquired.
    What is the effect of the error on Lui’s profit for the year to 30 November 2009?
    A understated by $6,300
    B understated by $7,700
    C overstated by $6,300
    D overstated by $7,700

    Answer is C : 6,300

    Why do I need to minus the $700?

    January 3, 2022 at 6:20 am #645206
    mrjonbain
    Moderator
    • Topics: 2
    • Replies: 1600
    • ☆☆☆☆☆

    It’s the depreciation expense on the wrongly capitalised repairs.$7000/10 =$700. This therefore results in net overstatement of $6300. Hope this helps.

    January 3, 2022 at 4:41 pm #645245
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10221
    • ☆☆☆☆☆

    Exactly right!

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