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Dear sir,I want to know how to calculate this question?What is the “plant held all year?Why it is (200000-40000)*20%?
Right Co’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.
Right Co’s plant and machinery at cost account for the year ended 30 September 20X3 is shown below.
Dr:1.10.20×2 balance is 200000
1.4.20×3 Cash-purchase of plant is 50000
Cr:30.6.20×3 Transfer disposal account is 40000
30 Sep.Balance is 210000
What should be the depreciation charge for plant and machinery (excluding any profit or loss on the disposal) for the year ended 30 September 20X3?
Thank you very much!The cost at the start of the year was 200,000. During the year they sold assets that had a cost of 40,000 and so only the difference of 160,000 was held all year.
There is more than one way of getting the answer to this question and I find the easiest way to be as follow:
From 1.10, 20X2 to 1.4.20X3 (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 1.4.20X3 they bought more and so the cost went up to 250,000. It stayed at this until 30.6.20X3 (3 months) and so the depreciation for this period is 3/12 x 20% x 250,000 = 12,500.
On 30.6.20X3 they sold plant that had cost 40,000, and so the cost went down to 210,000. It stayed at this until the 30.9.20X3 (3 months) and so the depreciation for this period is 3/12 x 20% x 210,000 = 10,500.
The total depreciation is the total of these three 🙂
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