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Sir,
“At 30th September 2008, the following balances existed in the record of Lam:
Plant & Equipment: cost $ 860,000
Accumulated depreciation: $ 397,000.During the year ended 30th September 2009, plant with a written down value of $37,000 was sold for $49,000. The plant had originally cost $80,000. Plant purchased during the year cost $180,000. It is the company’s policy to charge a full year Depreciation in the year of acquisition of an asset and none in the year of sale, using a rate of 10% on the straight-line basis.
What net amount should appear in Lam’s statement of financial position at 30th September 2009 for plant and equipment?”
Thanks for your help!
Mr. John,
“Grantham’s non-current assets register shows a balance of $345,000, and his ledger accounts a non-current asset carrying value of $348,000. Which of the following would explain this discrepancy in full?”
The answer is “An addition of $15,000 has not been recorded in the register and a disposal was deducted as proceeds of $12,000 rather than carrying value of $22,000. In the ledger account, the depreciation charge of $2,000 relating to an asset was charged twice.”
I cannot understand this situations. Can you give me some explanations for this answer, please?
Your first question:
You have not said which part of the question is causing you a problem (and I do assume that you have watched my free lecture on depreciation?).
As far as the cost is concerned, they started with 860,000, the sold assets which had a cost of 80,000 and bought assets at a cost of 180,000. So the cost at the end of the year is $960,000.
For accumulated depreciation, at the start of the year it was 397,000. They sold assets on which the depreciation was 43,000 (80,000 – 37,000). The depreciation for the year is 10% x 960,000 = 96,000. So the accumulated depreciation at the end of the year is 397,000 – 43,000 + 96,000 = $450,000.So the net amount for the Statement of financial position is $510,000.
Your second question:
The asset register is a note keeping a record of all the non-current assets. So the total should be the same as the total in the actual t-accounts.
The register is wrong because they had not recorded an addition – so it should be 15,000 higher. It is also wrong because they should have subtracted the carrying value of 22,000 but they have only subtracted 12,000. So it should be lower by the difference of 10,000.
So the correct figure in the register is 345,000 + 15,000 – 10,000 = 350,000.The t-account is wrong because the had subtracted depreciation of 2,000 twice, so the carrying value in the 7-accounts should be 2,000 higher. So the correct total in the t-accounts is 348,000 + 2,000 = $350,000
So not they agree!
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