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Hi teacher, could you please help me this question?
The truck account at cost of a business for the year ended 31 December 20X1 was as follows?
Truck cost:
Debit side:
1 Jan balance 240,000
30 June cash – purchase of vans 160,000
Total: 400,000Credit side:
31 Mar Disposal account 60,000
31 December Balance 340,000
Total: 400,000Brought forward accumulated depreciation at 1 January 20X1 was 115,000. The truck disposed of on 31 March had a carrying amount value of 20,000.
The company’s policy is to charge depreciation at 20% per year on the reducing balance, and charge a full year’s depreciation in the year of acquisition and none in the year of disposal.
What should the depreciation charge for the year ended 31 Dec 20X1?I did:
Depreciation charge: Additional cost + Disposal cost (charge until sold) + Remainder of cost (full charge)
=160,000*20%*6/12 + 60,000*3/12*20% + (240,000-60,000)*20% = 55,000The problem is that I dont know what the purpose of the b/d acc.depreciation does and carrying value after disposed?
The question says that the depreciation is on a reducing balance basis, and so it is based on the carrying value (net book value) and not on the original cost.
Also, the question says “a full years charge in the year of purchase and none in the year of disposal” – you have time-apportioned and counted the months which you should not have done.
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