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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%= $132960FIRST, 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!
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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