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A company’s policy is to charge depreciation on plant and machinery at 20% per year on cost, with proportional depreciation for items purchased or sold during a year.
The company’s plant and machinery at cost account for the year ended 30 September 20X3 is shown
below.
PLANT AND MACHINERY – COST
$ $
20X2 20X3
1 Oct Balance 200,000 30 Jun Transfer disposal account 40,000
30 Sep Balance 210,000
20X3
1 Apr Cash-purchase of plant 50,000
250,000 250,000What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 20X3?
A $43,000
B $51,000
C $42,000
D $45,000What should be the answer and how do we get it?
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations.
From 1 October X2 to 1 April X3 (6 months), the cost was 200,000 and so the depreciation for this period is 6/12 x 20% x 200,000 = 20,000.
On 1 April they bought new plant for 50,000 so the cost goes up to 250,000. It stays at this figure until 30 June (3 months) and so the depreciation for this period is 3/12 x 20% x 250,000 = 12,500
On 30 June they sold plant with a cost of 40,000 and so the cost goes down to 210,000. It stays at this amount until 30 September (3 months) and so the depreciation for this period is 3/12 x 20% x 210,000 = 10,500
The total depreciation for the year is the total of the three figures.
Thank you for the explanation sir.
I do have the answer, it’s a question from the BPP revision kit but I didn’t understand their explanation.
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