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Question on depreciation

Forums › Ask CIMA Tutor Forums › Ask CIMA BA1 Tutor Forums › Question on depreciation

  • This topic has 2 replies, 2 voices, and was last updated 2 years ago by Joel70000.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • June 14, 2020 at 8:07 pm #573798
    Joel70000
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Hello? Joel. I have a query for an answer that was given here…

    A machine costs $9.000. It has an expected useful life if 6 years, and an expected residue value of $1,000. It is to be depreciated at 30 per cent per annum on the reducing-balance basis. A full year’s depreciation is charged in the year of purchase, with non in the year of sale. During year 4, it is sold for $3,000. What is the profit or loss on disposal?
    All they did was to multiply the 90000 with 0.7^3, which gave them 3087 as the NBV. Sale proceeds – NBV = 3087-3000= 87 loss on disposal..

    Kindly help me figure out how they found the 0.7
    I will appreciate

    June 15, 2020 at 7:52 am #573821
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10197
    • ☆☆☆☆☆

    30% is equivalent to 0.3; 70% is equivalent to 0.7. Ifmthe depreciation rate is 30%, the NBV after a,year is 70% of the opening balance. Residual value is not relevant in reducing balance depreciation.

    After 1st yr, NBV would be 9,000 – 9,000 x 0.3 = 6,300 (or 9,000 x 0.7)

    After 2nd yr, NBV would be 6,300 – 6,300 x 0.3 = 6,300 x 0.7 = 4,410 = 9000 x 0.7 x 0.7 = 4,410

    After 3rd, yr, NBV would be 9000 x 0.7 x 0.7 x 0.7

    HTH

    Not sure why you called me Joel. I’m Ken.

    June 15, 2020 at 11:50 am #573839
    Joel70000
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Oh thank you a lot.
    No I’m sorry, I meant Joel as in it being my name. I just didn’t put it right…. Thanks again, Ken. You’ve really helped

  • Author
    Posts
Viewing 3 posts - 1 through 3 (of 3 total)
  • The topic ‘Question on depreciation’ is closed to new replies.

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