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Hi sir ,
In the above question i completly didnt understood about motor vehicle answer given in revision kit.
Can you explain it to me please.I’m not sure which revision kit you are using but abyhow, the mpoint about the motor vehicles is as follows:
We are told they are depreciated at 33% so the assumption is a 3 year useful life. However:
1 We are also told that the motor vehicles are sold after 5 years. Therefore there is an inconsistency. If the vehicles last for 5 years the depreciation rate should be 20% pa.
2 There might also be a problem with the depreciation charge. The cost at 31/5/20X6 is 1,700,000 and the depreciation charge for the year is 425,000 ie 25%. Of course the charge shold be lower than 33% because some of the vehicles will probably be fully depreciated if they are usually kept for 5 years. However 25% is a very round nnumber and they might simply have applied 25% to the closing cost balance. It certainly needs investigation. So:
Company says depreciation rate is 33%
Looks as though 25% has been applied
Looks as though 2-% would be more appropriate.
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