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Dear Mr. Moffat,
The study text, I use clearly mentions that the residual value should NOT be deducted from the cost when calculating dep’n under the Reducing Balance Method.
“Under the reducing balance method, unlike the straight line method, we do not deduct the residual value from the cost before depreciating. Instead, we depreciate the asset using the percentage given, until we reach the residual value, and then we stop depreciating, as illustrated in the table below.” – Study Text
However I came across an answer to a question on another publisher’s book, where the residual value was deducted at the start of the calculation. Some accounting website also followed this method.
I am now confused. Can you please clarify this for me?
Best Regads
Mathews
In practice there are no rules as to how a business chooses to calculate its depreciation.
For the exam, it is either straight line or reducing balance, and with reducing balance we do not subtract any residual value from the original cost.
Everything needed to be able to pass the exam well is covered in our free lectures, including those on depreciation.
Rather than look at other books, you should use a Revision Kit from one of the ACCA approved publishers. They contain lots of exam standard questions and answer them in the way required for the exam.
Dear Mr. Moffat,
Thank you for your prompt reply, as you always do. 🙂
Doubt is cleared.
Your advice on using approved books and OpenTuition is well received…. Thank you.
Best Regards
Mathews
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