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This is sort of a very long question but i will just include where my question concern is.
Property at cost $120 000
Equipment at cost:$80 000
Accumulated depriciation as @1june 20×0
-on property $20 000
-on equipment $38 000
Then the notes are: Depreciation for the year ended 31 May 20×1 has still to be allowed as follows:
Property 1.5% per annum using the straight line method.
Equipment 25% per annum using the reducing balancing method.So NBV”s will be $120 000 less $20 000 and $80 000 less 38 000 respectively. Furthermore: Opening accumulated dep for property = $20 000
Add: Allowance for the year ( 1.5% x 100 000)Opening accumulated dep for Equipment = $ 38 000
Add: Allowance for the year ( 25%x 42 0000)The depreciation for property is worked out this way in the book:
Opening accumulated dep $20 000
Add Allowance for the year( 1.5% x 120 000)
*** Please kindly explain why the calculation for allowance for the year is 1.5%x120 000 and not 1.5%x 100 000 ??For property, their policy is 1.5% straight line.
This means that the depreciation is 1.5% of cost each year.
(I don’t know why you keep referring to the depreciation charge as an ‘allowance’ we do not call it an allowance 🙂 )
🙂 Straight line, of course. Thank you John. I got confused there for a moment. I just typed out this question the same way it was from a BPP text book. That is how they put it- as allowance for the year.. But thank you for the correction i will call it Depreciation charge from now on 🙂
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