DEPRECIATIONWeek 2

Question 1 – Calculating Deprecation

Calculate the depreciation on the straight line basis for each of the following non-current assets for the year ended 31/12/XX. Also calculating the carrying amount of each asset as at 31/12/XX:

Question 1 – Calculating Depreciation

a. Machine purchased for £17,400 on 01/01/X5 with an estimated useful economic life of 5 years and a zero scrap value.

Machine @ Cost

Purchased

Life

Annual Depreciation Charge

Accumulated Deprecaton @ 31/12/X7

Carrying Value

Question 1 – Calculating Depreciation

a. Machine purchased for £17,400 on 01/01/X5 with an estimated useful economic life of 5 years and a zero scrap value.

Machine @ Cost £17400

Purchased 1/1/20X5

Life 5 Years

Annual Depr Charge £17400 ÷ 5 = £3480

Accumulated Deprecaton @ 31/12/X7 X5 £3480X6 £3480X7 £3480Total £10440

Carrying Value £17400 - £10440 = £6960

Complete Question 1 b & c

Question 1 – Calculating Depreciation

b. Machine purchased for £12,800 on 01/01/X6 with estimated useful economic life of 4 years and a scrap value of £2000

Machine @ Cost

Purchased

LifeScrap Value

Annual Depr Charge

Accumulated Deprecaton @ 31/12/X7

Carrying Value

Question 1 – Calculating Depreciation

b. Machine purchased for £12,800 on 01/01/X6 with estimated useful economic life of 4 years and a scrap value of £2000

Machine @ Cost £12,800

Purchased 1/1/20X6

LifeScrap Value

4 Years£2,000

Annual Depr Charge £12,800 - £2,000 = £10,800£10,800 ÷ 4 = £2,700

Accumulated Deprecaton @ 31/12/X7 X6 £2,700X7 £2,700Total £5,400

Carrying Value £12,800 - £5,400 = £7,400

Question 1 – Calculating Depreciation

c. Computer purchased for £4,600 on 01/01/X7 with estimated useful economic life of 3 years and a residual value of £700

Computer @ Cost

Purchased

LifeResidual Value

Annual Depr Charge

Accumulated Deprecaton @ 31/12/X7

Carrying Value

Question 1 – Calculating Depreciation

c. Computer purchased for £4,600 on 01/01/X7 with estimated useful economic life of 3 years and a residual value of £700

Computer @ Cost £4,600

Purchased 1/1/20X7

LifeResidual Value

3 Years£700

Annual Depr Charge £4,600 - £700 = £3,900£3,900 ÷ 3 = £1,300

Accumulated Deprecaton @ 31/12/X7 One year only £1,300

Carrying Value £4,600 - £1,300 = £3,300

Question 2 – Calculating Depreciation

For each of the following assets calculate the depreciation charge for the year ended 31/03/X7 and the carrying amount at that date:

Question 2 – Calculating Depreciation

Machinery costing £24,600 purchased on 01/04/X6 which is to be depreciated at 20% on the reducing balance basis.

Machinery @ Cost

Purchased

Annual Depr Charge

Accumulated Deprecaton @ 31/3/X7

Carrying Value

Question 2 – Calculating Depreciation

Machinery costing £24,600 purchased on 01/04/X6 which is to be depreciated at 20% on the reducing balance basis.

Machinery @ Cost £24,600

Purchased 1/4/X6

Annual Depr Charge £24,600 x 20% = £4,920

Accumulated Deprecaton @ 31/3/X7 One year only £4,920

Carrying Value £24,600 - £4,920 = £19,680

Complete Question 2 b & c

Extension questions 3 & 4

DO NOT DO QUESTION 5 YET!

Question 2 – Calculating Depreciation

b. Motor Vehicle costing£18,700 purchased on 01/04/X4 which is to be depreciated at 25% on the reducing balance basis.

Motor Vehicle @ Cost

Purchased

Annual Depr Charge 25%

Accumulated Deprecaton@ 31/3/X7

Carrying Value

Question 2 – Calculating Depreciation

b. Motor Vehicle costing£18,700 purchased on 01/04/X4 which is to be depreciated at 25% on the reducing balance basis.

Motor Vehicle @ Cost £18,700

Purchased 1/4/X4

Annual Depr Charge 25% X5 £18,700 x 25% = £4,675X6 £14,025 (£18,700 - £4,675) x 25% = £3,506X7 £10,519 (£14,025 – £3,506) x 25% = £2,630

Accumulated Deprecaton@ 31/3/X7

X5 £4675X6 £3506X7 £2630£10,811

Carrying Value £18,700 - £10,811 = £7,889

Question 2 – Calculating Depreciation

c. Computer costing £3,800 purchased on 01/04/X5 which is to be depreciated at 30% on the reducing balance basis.

Computer @ Cost £3,800

Purchased 1/4/X5

Annual Depr Charge 30% X6 £3800 x 30% = £1140X7 £2660 (£3800 - £1140) x 30% = 798

Accumulated Deprecaton@ 31/3/X7

X6 £1140X7 £798£1938

Carrying Value £3800 - £1938 = £1862

Question 5 - Harris

Question 5 – Harris

Harris Incorporated have brought a machine costing £400,000 which is expected to be used in the organisation for 6 years. At the end of the 6 years it is estimated that the asset will be sold for £40,000. The asset is to be depreciated on a straight line basis. Show the entries in the ledger accounts for the first two years of the assets life and how it will appear in the statement of financial position for those two years.

Non Current Asset

Bank 400,000     

Bank

Bank 400,000  

Depreciation - Expense

 

Accumulated Depreciation

Depreciation - ExpenseYear 1 Charge 60,000

 

Accumulated DepreciationYear 1 Charge 60,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Year 2

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 Year 2 Charge 60,000

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Year 2 Charge 60,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 Year 2 Charge 60,000 SOCI 60,000

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Year 2 Charge 60,000120,000 120,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 Year 2 Charge 60,000 SOCI 60,000

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Balance c/d 120,000 Year 2 Charge 60,000120,000 120,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 Year 2 Charge 60,000 SOCI 60,000

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Balance c/d 120,000 Year 2 Charge 60,000120,000 120,000

Balance b/d 120,000

Depreciation - ExpenseYear 1 Charge 60,000 SOCI 60,000

 Year 2 Charge 60,000 SOCI 60,000

 

Accumulated DepreciationBalance c/d 60,000 Year 1 Charge 60,000

60,000   60,000

Balance b/d 60,000

Balance c/d 120,000 Year 2 Charge 60,000120,000 120,000

Balance b/d 120,000

SOCI

SFP

Balance sheet extract

Year 1Non Current Assets Cost Depreciation CV

Machinery £400,000 £60,000 £340,000

Balance sheet extract

Year 1Non Current Assets Cost Depreciation CV

Machinery £400,000 £60,000 £340,000

Year 2Non Current Assets Cost Depreciation CV

Machinery £400,000 £120,000 £280,000

Question 6 – Sues Solarium

Extension questions 7-10