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Depreciation charged (IAS16 PPE)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Depreciation charged (IAS16 PPE)

  • This topic has 2 replies, 3 voices, and was last updated 1 year ago by P2-D2.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • November 29, 2023 at 8:39 am #695703
    Yaewon
    Participant
    • Topics: 1
    • Replies: 0
    • ☆

    Aphrodite Co has a year end of 31 December and operates a factory which makes computer chips for mobile phones.

    It purchased a machine on 1 July 20X3 for $80,000 which had a useful life of ten years and is depreciated on the
    straight-line basis, time apportioned in the years of acquisition and disposal.

    The machine was revalued to $81,000 on 1 July 20X4.

    There was no change to its useful life at that date.

    A fire at the factory on 1 October 20X6 damaged the machine leaving it with a lower operating capacity.

    The accountant considers that Aphrodite Co will need to recognise an impairment loss in relation to this damage.

    The accountant has ascertained the following information at 1 October 20X6:
    (1)
    The carrying amount of the machine is $60,750.
    (2)
    An equivalent new machine would cost $90,000.
    (3)
    The machine could be sold in its current condition for a gross amount of $45,000. Dismantling costs would amount
    to $2,000.
    (4)
    In its current condition, the machine could operate for three more years which gives it a value in use figure of
    $38,685.
    In accordance with IAS 16 Property, Plant and Equipment, what is the depreciation charged to Aphrodite Co’s
    profit or loss in respect of the machine for the year ended 31 December 20X4?

    A $9,000
    B $8,000
    C $8,263
    D $8,500

    The answer shows like below, but why the depreciation is 6months (1Jan to 30June X4)? Is it should be 1 year depreciation from 1.July.X3 to they revalue the amount(1.July20x4)? So my answer should be 8000(80000/10)+4500(81000/9×6/12)

    Depreciation 1 January to 30 June 20X4 (80,000/10 × 6/ 12) = 4,000
    Depreciation 1 July to 31 December 20X4 (81,000/9 × 6/ 12) = 4,500
    Total depreciation = 8,500

    November 29, 2023 at 9:12 am #695707
    yuceeluv
    Participant
    • Topics: 4
    • Replies: 14
    • ☆

    He has a year end of 31st December. A year end can not be more than 12 months. If he has a year end of December and we are asked for only the depreciation that covers one year(01st January-31st December), we have to exclude/ignore the depreciation for the months from 01st July 20×3-31st December 20×3 to get the right answer.

    Just my opinion. I will let the Tutor give you a better explanation.

    November 29, 2023 at 9:52 pm #695739
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7142
    • ☆☆☆☆☆

    Hi,

    The depreciation takes place in two distinct parts in the year-ended 31 December 20X4.

    1 January 20X4 to 1 July 20X4 (pre-revaluation) and 1 July 20X4 to 31 December 20X4 (post revaluation).

    Pre-revaluation the asset was being depreciated over 10 years and it will be pro-rated for the 6 months to 1 July 20X4.

    We then depreciate the revalued asset over its remaining useful life, which is 9 years given we’ve owned the asset for 1 year at this date.

    Hope that helps clear it up.

    Thanks

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