- October 17, 2015 at 7:11 pm #276917
I had in exam (which I failed) the next question.
An asset has value of 50000 $, a residual value of 1000$ and an useful life of 7 years. It was bought at 01.04.20×5. It is depreciated straight line with 25% in the year of acquisition and in the year of disposal.
At 30.09.20×8 it is revalued at 41000$. No changes in the remaining life.
What is the amount charged in P&L at 31.12.20×8?
CameliaOctober 18, 2015 at 7:26 am #276946
Are you sure you are remembering the question correctly, because it makes no sense to depreciate 25% straight line in the year of acquisition and the year of disposal – that just would not happen 🙂October 18, 2015 at 9:38 am #276957
Yes, I remember correct because it was one of the questions that still haunting me after the exam. 🙂 And I don’t remember to practice something like that in exam kit.
I simply didn’t know how to solve it.
cameliaOctober 18, 2015 at 10:12 am #276962
My mistake. You are right. It was not specified that depreciation of 25 % straight forward. Only the usefull years and the residual value.
But I still blocked and I didn’t know how to solve it on the moment.
cameliaOctober 18, 2015 at 11:19 pm #277091
At first the annual depreciation will have been (50,000 – 1,000) / 7 = 7,000.
So, the depreciation in year ended 31.12.X5 will be 9/12 x 7,000 = 5,250
In X6 it will be 7,000
in X7 it will be 7,000
In X8, up to 30.9.X8 it will be 9/12 x 7,000 = 5,250
At 30.9.X8 it is revalued at 41,000. They have owned it for 3.5 years, and therefore the remaining life will be 7 – 3.5 = 3.5 years.
So the annual depreciation from then on will be (41,000 – 1,000) / 3.5 = 11,429
So the depreciation for the part of X8 since the revaluation will be 3/12 x 11,429 = 2,857
So the total depreciation for X8 will be 5250 + 2857 = 8107
(You had better check my arithmetic – I have just got back from a few days vacation and it is very late 🙂 )October 19, 2015 at 5:02 am #277253
Thank you so much for the answer. 🙂October 19, 2015 at 9:06 am #277361
You are welcome 🙂
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