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Depreciation on pro rata basis

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Depreciation on pro rata basis

  • This topic has 1 reply, 2 voices, and was last updated 9 months ago by John Moffat.
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  • Author
    Posts
  • April 21, 2022 at 10:52 am #654186
    nurmaisarahanuar
    Member
    • Topics: 1
    • Replies: 0
    • ☆

    Andy has a business that sells stationeries and toys. On 1st June 2013, he bought an equipment with
    a list price of $33,000. He also paid $2,000 to deliver the equipment to his shop and $1,000 to install
    and test it. A further $2,000 was paid for the first-year maintenance. He expects to use the
    equipment for 10 years after which its residual value is estimated at $1,000. He decided to
    depreciate the equipment at 20% per annum, using the reducing balance basis.

    On 1st May 2016, Andy decided to change the depreciation method for equipment to straight-line
    method. He also decided to revise the estimated residual value to $2,336 and to decrease the
    remaining useful life of the equipment by 2 years.
    Andy charges depreciation on pro-rata basis.

    Later, at the end of its useful life, Andy traded in the equipment with a new one that costs $25,000.
    He paid $21,500 by cheque to the equipment supplier

    **Question: What is the carrying value of the equipment as at 30th April 2019?

    I do get the first part where you depreciate using reducing balance basis:

    36000×0.2×11/12= 6600
    29400×0.2 =5880
    23520×0.2 =4704
    Accumulated dep=17184
    Carrying value as at 1st may 20×6=18816

    For straight line basis:
    (18816-23360)/??
    **This where im stuck at, should i divide with 60 or 61 months?

    Thank you in advance.

    April 21, 2022 at 4:47 pm #654224
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51543
    • ☆☆☆☆☆

    If it is straight line depreciation then the total depreciation will be 36,000 – 1,000 – $35,000.
    They expect to keep the equipment for 10 years and therefore the depreciation will be 35,000/(10 x 12) per month.

    As at the 30 April 2019 they will have had the equipment for 71 months (5 years and 11 months) and therefore the total depreciation will have been 71 x ((35,000/(10 x 12)).

    Have you watched my free lectures on this?

    (Also, why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and the workings 🙂 )

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