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Hi,
I am a little bit confused on this questionThe plant and machinery at cost account of a business for the year ended 30 June 20X4 was as follows:
PLANT AND MACHINERY – COST
$ $
20X3 20X3
1 Jul Balance 240,000 30 Sep Transfer disposal account 60,000
20X4 20X4
1 Jan Cash – purchase of plant 160,000 30 Jun Balance 340,000
400,000 400,000
The 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?
The answer is $55,000Workings
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
I d like to know that if we have to subtract 9000 depreciation charge from 340,000 P&M Cost before applying 20% depr.rate because of reducing balance method? Thanx in advance
Where did you find this question, because either you have copied it wrongly or it is impossible to answer.
The reason is that the question gives the P&M at cost account. Reducing balance depreciation is not based on the cost – it is based on the carrying value / NBV.
To be able to answer it we need the accumulated depreciation brought forward and the accumulated depreciation on the asset sold.
Are you sure that the question does not say that they charge straight line deprecations?
I recopied the question
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. $55,000I have the Revision Kit in front of me, and you have copied it wrongly both times!!!!
It specifically says “The company’s policy is to charge depreciation at 20% per year on the straight line basis”.
The answer is correct, and I said in my previous post to check that it was not straight line depreciation!!
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