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ABC Ltd purchases a machine for £12,000. After incurring transportation costs of £1,300 and spending of £2,000 on installing the machine the company are disappointed when it breaks down and costs £600 to repair. Depreciation is charged at 10% straight-line per annum with a full year’s charge in the year of acquisition.
What will be the net book value of machine will be shown in the balance sheet at the year-end of ABC Ltd?
Total cost of the asset
including transportation,
installation and repair charges = 1590010% Depreciation (1590)
Net Value of the Asset = 14310
I hope its correct.
mujtaba023: Please don’t answer in this forum – it is Ask the Tutor (but please do help people in the other F3 forum 🙂 )
Debajyoti: The capital cost is 12,000 + 1,300 + 2,000 = 15,300
So the depreciation is 10% x 15,300 = 1,530
Therefore the carrying value in the Statement of financial position is 15,000 – 1,530 = 13,470The cost of the repairs is a revenue expense and will appear in the Statement of profit or loss – not as part of the cost of the asset.
(We stopped using the expression ‘Balance sheet’ many years ago – it is Statement of financial position)
I do suggest that you watch my free lectures – they are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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