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QUESTION 1
A car was purchased by a newsagent business in May 20X0 for:
$
Cost 10,000
Road tax 150
———-
Total 10,150The business adopts a date of 31 December as it’s year end.
The car was traded in for replacement vehicle in August 2003 at an agreed value of 5,000. It has been depreciated at 25% per annum on the reducing balance method, charging a full years depreciation in the year of purchase and none in the year of sale.
What was the profit or Loss on Disposal of the Vehicle during the year ended December 2003?
A. Profit 718
B. Profit 781
C: Profit 1,788
D. Profit 1836QUESTION 2
The plant and machinery at cost account of a business for the year ended 30 June 20X4
was as follows:
PLANT AND MACHINERY – COST(DR)
20X3
1 Jul Balance 240,000
20X4
1 Jan Cash – purchase of plant 160,000
————
400,000(CR)
2003
30 Sep Transfer disposal account 60,00020X4
30 Jun Balance 340,000
————
400,000The company’s policy is to charge depreciation at 20% per year on the reducing balance basis, with
Proportionate depreciation in the years of purchase and disposal.
What should be the depreciation charge for the year ended 30 June 20X4?
A. $68,000
B. $64,000
C. $61,000
D. $55,000Question 1:
Ans) Profit 781
Workings:
Car Cost = 10,000
Road Tax is excluded since it isn’t a capital cost. It will be renewed on intervals.Year 20X0:
Depreciation = (10,000-0)*25% = 2,500
Net Book Value = 10,000-2,500 = 7,500
Accumulated Depreciation = 2,500Year 20X1:
Depreciation = (10,000-2,500)*25% = 1,875
Net Book Value = 7,500-1,875 = 5,625
Accumulated Depreciation = 2,500+1,875 = 4,375Year 20X2:
Depreciation = (10,000-4,375)*25% = 1,406
Net Book Value = 5,625-1,406 = 4,219
Accumulated Depreciation = 4,375+1,406 = 5,781Year 20X3:
No Depreciation in the year of disposal.
Profit/Loss on Disposal = PEA Proceeds – NBV
Profit/Loss on Disposal = 5,000 – 4,219
Profit on Disposal = 781Question 2:
Ans) $55,000
Workings:1 July 20X3 – 30 Sep 20X3 (3 months):
P&M Cost = 240,000
Depreciation = 240,000*20%*3/12 = 12,0001 Oct 20X3 – 31 Dec 20X3 (3 months):
P&M Cost = 240,000-60,000 (disposed) = 180,000
Depreciation = 180,000*20%*3/12 = 9,0001 Jan 20X4 – 30 June 20X4 (6 months):
P&M Cost = 340,000
Depreciation = 340,000*20%*6/12 = 34,000Total Depreciation Charge = 12,000+9,000+34,000 = 55,000
Let me give you question about this answer.
Every time I look at this question so it is always confused me. As we know, the car was purcheased in May but you computed depriciation for whole 2000 year as 2500 ( 10.000*25%=2500). In my opinion depriciation for 2000 year should be calculated as follow:
10000*25%/12*7= 1458.33 (it takes a 7 months from may to december)
It is possible I make a mistake. I couldn’t see any comprehensive explonation about this matter.
Could you explain this issue again, pease?Thank you in advance!
If you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.
@huseynovrashad1983
Please read the question very carefully whenever you’re attempting one.
The question has already mentioned that “a full years depreciation in the year of purchase and none in the year of sale”.That is why we have charged the full 2,500 amount instead of 1,458.
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