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On 31 December 2011 the company completed the construction of a new
warehouse. The construction was achieved using the company’s own resources
as follows:($000)
Purchased materials 150
Direct labour 800
Supervision 65
Design and planning costs 20Included in the above figures are $10,000 for materials and $25,000 for labour
costs that were effectively lost due to the foundations being too close to a
neighbouring property. All the above costs are included in cost of sales. The
building was brought into immediate use on completion and has an estimated
life of 20 years (straight-line depreciation).Calculate the depreciation charged.
Well, I know that I can do this exercise. Why can’t you? You have the answer in front of you so what is it about the answer that you don’t understand?
(I could do the answer but you haven’t told me the year end!)
The year end is 31 March 2012. Actually I did correctly. but I don’t understand why the answer key did not pro rate the depreciation. As in if the assets is put in use on 31 Dec 2011,shouldn’t it only account for depreciation for the 3 month when it was actually put in use?
Maybe the question says “a full year in the year of purchase and none in the year of sale” or something similar
Check to see if that wording is included within the question. If it isn’t, post again and give me a reference to find the question
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