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Straight line depreciation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Straight line depreciation

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • October 8, 2023 at 7:39 am #692922
    najiharmmed786@gmail.com
    Participant
    • Topics: 14
    • Replies: 21
    • ☆

    Hello sir..!

    While calculating depreciation using straight line method ,if a percentage rate is given (say 20%), do we need to apply the percentage on cost or cost less residual value.

    My understanding is that we have to apply the percentage on cost and not on cost less residual value.

    The question which caused this doubt is FA Kaplan kit 2023-2024 question number 200.

    It goes as follows:

    A business has an accounting year end of 30 June. It purchased an item of plant on 1 April 20X5 as follows :

    Cost $15000
    3 year maintenance agreement $450

    Total $15450

    At the date of purchase the item of plant had an estimated useful life to the business of five years and an estimated residual value of $2000. This item of plant was traded in for a replacement item on 30 September 20X8 at an agreed valuaton of $5000.

    It has been depreciated at 20% per annum on a straight line basis with a pro rated charge in the year of acquisition and disposal.

    Calculate the profit or loss on disposal of the item of plant.

    In the provided answer, they have calculated accumulated depreciation as follows:

    (15000 cost -2000 residual value )*20%*3.5 years

    Which equals to $9100

    Shouldn’t it be 15000 cost * 20% * 3.5 years

    Thanks in advance …

    October 8, 2023 at 3:16 pm #692927
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    The Kaplan answer is correct.

    With straight line depreciation the charge each year is (initial cost – expected residual value) x 20%,

    It is only with reducing balance depreciation that any expected residual value is ignored.

    Have you watched my free lectures on this? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.

    October 9, 2023 at 7:06 am #692941
    najiharmmed786@gmail.com
    Participant
    • Topics: 14
    • Replies: 21
    • ☆

    Thank you sir. Really appreciate your prompt reply.

    October 9, 2023 at 7:25 am #692942
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54682
    • ☆☆☆☆☆

    You are welcome 🙂

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Straight line depreciation’ is closed to new replies.

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