Depreciation

At 1 October 2002 Jim had fixed assets as follows: Freehold Land Buildings Machinery £ ££ Cost 85,000 120,500 74,800 Accumulated depreciation nil 128,920 35,600 Jim’s policy is to provide for a full year’s depreciation in the year of acquisition, but no provision is made in the year of disposal. Depreciation is provided at the following rates: Land nil Buildings written off over 25 years, on the straight line basis Machinery 20% per annum, on the reducing balance basis During the year to 30 September 2003, Jim added an extension to the buildings at a cost of £6,800. He also acquired a new machine, by paying the dealer £9,000 by cheque and trading in an old machine for £5,500. The machine traded in had been acquired in January 2000 at a cost of £11,000. Jim has asked why depreciation is not charged on the land, but is charged on other fixed assets. Required: (a) As at 30 September 2003, calculate: (i) the value of Jim’s fixed assets, before deducting depreciation; (3 marks) (ii) the accumulated depreciation; (4 marks) (iii) the net book value of fixed assets. (1 mark) (b) Calculate the profit or loss on the machine which was traded in. (3 marks) (c) Draft brief notes which explain why depreciation should be charged on the fixed assets other than freehold land.