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The plant and and machinery account (at cost) of a business for the year ended 31 December 20X5 was as follows:
Plant and Machinery at cost
Dr side CR side
20X5 20X5
1 Jan Balance b/f 240,000 31 March Transfer to disposal account$60,000
30 Jun Cash purchase of plant 160,000 31 Dec Balance c/f 340,000
total 400,000 total 400,000The company’s policy is to charge depreciation at 20% per year on the straight line basis with proportionate depreciation in the years ofpurchase and dispoal
what should be the depreciation charge for the year ended 31 December 2005?
okay sir so they bought a ppe for 240,000 on 1 Jan 2005 then dispoed off on 31 March 2005 for 60,000..sir i dont get it how to solve it..and i cant understand back answer too..please explainFrom 1 Jan to 31 March, the cost was 240,000. So depreciate this for 3 months at 20% per year.
From 1 April to 30 June, the cost was 180,000 (240,000 – 60,000). So depreciate this for 3 months at 20%.
From 1 July to 31 December the cost was 340,000 (180,000 + 160,000). So depreciate this for 6 months at 20%.Then add all three together to get the total depreciation for the year.
From 1 April to 30 June, the cost was 180,000 (240,000 – 60,000). So depreciate this for 3
sir here? why are we subtracting? cost – Acc dep? which formula are we using?1 July to 31 December the cost was 340,000 (180,000 + 160,000). So depreciate this for 6 months at 20%. nd why are we adding them? which formula? ohh is it because? they purchased a new PPE? so carrying value added to the addition bought? is it correct?
We are not using formula – this is not a formula exam, it is an exam to test your understanding.
We are subtracting 60,000 because that was the cost of what was sold. So 180,000 is the cost of what was left.
Carrying values have nothing to do with it. The depreciation is based on the cost and the t-account is showing the cost.
Please watch my free lectures on this again.
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