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hi guys, qustion is : A car bought on the 1May 2010 at cost of 30000, 20% straight line basis, with a proprotionate chagre in the period of acquisition. what wil the depn charge for the 10 month accounting period to 30 Sep 2010?
Should it be 30000*20%* 5/12 or 30000*20%* 5/10 ?
I thought it was 5/10, because it said 10 month period. but answer is 5/12,
WHY ?1 May 2010 until 30 September 2010 is 5 months ;
30,000 * 20% = 6,000 is 12 months depreciation charge ;
therefor the proportionate depreciation charge for 5 months should be 6,000 * 5/12 = 2,500In the first look, some students immediately calculate the depreciation charge for 10 months ( ie 6,000 * 10/12 ) while the business used the car just for 5 months form 1 May until 30 September. However, this figure of 10 is given for making the question more complicated.
Good luck
Hi,
But what does the 10 month accounting period mean here? We can’t just ingore it. Can we?
Oh yea, I got now your mistakenly view on this question. actually, it’s not ” 10 month accounting period “, it is “10 month, accounting period to . . . ” . In other words, generally, the depreciation charge is presented based on the annual rates, this means that the rates given in the questions are for annual depreciation calculation ( 12 month ) unless the questions directly specify the different base for depreciation rates.
If the fiscal year in this question was 10 months then it should be specified that the rate of 20% is for ten months not usually for a full year ( 12 months ).Good luck
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