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DEPRECIATION CHARGE CALCULATION

Forums › Ask CIMA Tutor Forums › Ask CIMA P3 Tutor Forums › DEPRECIATION CHARGE CALCULATION

  • This topic has 1 reply, 2 voices, and was last updated 5 years ago by Ken Garrett.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 30, 2019 at 1:55 am #551178
    nikoling
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    QUESTION:

    ON 1 JANUARY 2017 DELIVERY VEHICLES, COST $950 000, HAD BEEN DEPRECIATED BY $482 800.

    DEPRECIATION IS CHARGED ON ALL NON-CURRENT ASSETS AT 20% PER ANNUM, USING THE REDUCING BALANCE METHOD.

    A FULL YEAR’S DEPRECIATION IS CHARGED IN THE YEAR OF ACQUISITION AND NONE IN THE YEAR OF DISPOSAL.

    DURING THE YEAR ENDED 31 DECEMBER 2017, A DELIVERY VEHICLE WAS SOLD FOR $67 500. THIS WAS PURCHASED ON 1 JUNE 2014 FOR $200 000 AND HAD ACCUMULATED DEPRECIATION OF $97 600. THE SALE PROCEEDS WERE RECORDED IN THE BOOKS OF ACCOUNT, BUT NO OTHER ENTRIES RELATING TO THE DISPOSAL HAVE RECORDED.

    A NEW VEHICLE COSTING $300 000 WAS PURCHASED.

    (A) CALCULATE THE DEPRECIATION CHARGE FOR THE YEAR ENDED 31 DECEMBER 2017.

    THE GIVEN ANSWER SHOWED BELOW ( BUT I CAN’T UNDERSTAND)

    COST: $950000-$200000+$300000= $1050000
    ACCUMULATED DEPRECIATION: $ 482800-$97600=$385200
    CARRYING VALUE: $1050000-$385200=$664800
    DEPRECIATION CHARGE= $664800*20%= $132960

    FIRST, WHY USE $950000 TO SUBTRACT THE PURCHASES ON 2014?
    SECOND, AGAIN, THE WHY THE ACCUMULATED DEPRECIATION USE THE 2017 SUBTRACT 2014 ACCUMULATED DEPRECIATION VALUE?

    COULD ANYBODY EXPLAIN EACH STEP FOR CALCULATING THE DEPRECIATION CHARGE. THANK YOU!

    October 30, 2019 at 11:18 am #551229
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    You remove the original cost od disposed assets from the cost acccount and you remove the accumulated depreciation for the disposed asset from the depreciation account.

    Then add the cost of the new addition.

    Therefore, the starting point form the depreciation calculation is (net book value) 664800 and 20% is appplied to that.

    This is not a P3 topic. It is basic, normal bookkeeping and would be more appropriate on a different forum

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  • The topic ‘DEPRECIATION CHARGE CALCULATION’ is closed to new replies.

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