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    am doing my accountancy revision for as january module 1 and i can seeem to get this question please help me
    :confused:
    an extract from choco machines balance sheet as at 28 february 2006 showed the following:
    machinery at cost: 460000
    depreciation to date:150000
    net book value:310000

    during the year ended 28 february 2007 the following transaction took place

    on 1 march 2006 choco machines purchased machinery at a cost of £800000
    on 1 september 2006 choco machines sold machinery for £24000.this machinery was originary purchased on 1 march 2004 at a cost price of £60000

    all transactions are by cheques

    depreciation is provided by straight line basis .for purposes of calculating depreciation the business assumes that the machinery will have a four year life .it will then be disposed of at an estimated residual value of 10%of its original cost.the rate is charged for each proportion of the year machinery is owned.all other items of machinery have been purchased within the previous three years.


    could you please help me to calculate the provision of depreciation for the disposed machinery
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    (Original post by latifa)
    am doing my accountancy revision for as january module 1 and i can seeem to get this question please help me
    :confused:
    an extract from choco machines balance sheet as at 28 february 2006 showed the following:
    machinery at cost: 460000
    depreciation to date:150000
    net book value:310000

    during the year ended 28 february 2007 the following transaction took place

    on 1 march 2006 choco machines purchased machinery at a cost of £800000
    on 1 september 2006 choco machines sold machinery for £24000.this machinery was originary purchased on 1 march 2004 at a cost price of £60000

    all transactions are by cheques

    depreciation is provided by straight line basis .for purposes of calculating depreciation the business assumes that the machinery will have a four year life .it will then be disposed of at an estimated residual value of 10%of its original cost.the rate is charged for each proportion of the year machinery is owned.all other items of machinery have been purchased within the previous three years.


    could you please help me to calculate the provision of depreciation for the disposed machinery

    Hey there. I tried this question and it took me a couple of minutes to get my head around it. The answer may not be correct but it may be.

    STEP 1:- Read the information. It tells you that the Depreciation method is to be Straight-Line. Therefore, the amount is to be an fixed amount.

    STEP 2:- It tells you that the estimated usage will be 4 years. Put this against the Machinery at Cost = £60,000/4 years = £15,000 per annum.

    STEP 3:- This is where I got a little bit confused. The purchase was made on 1 March, 2004. So, it will have had to had (March 04 - Feb 05) 1 YEAR (March 05 - Feb 06) 2 Years Depreciation. HOWEVER what I do not know is that if they charge Depreciation in-between months. Assuming so, since the Machinery was sold in Sept 06, the third year would be (March 06 - Sept 06) I.E:- A TOTAL OF TWO YEARS AND SIX MONTHS.

    Multiply it by the Straight-Line figure = £15,000 x 2.5 = £37,500. Provision for Depreciation.

    You can even calculate the Profit or Loss on Disposal of the Machinery!

    NBV at sale date = (£60,000 - £37,500) = £22,500.
    Sale proceeds = £24,000.
    Profit on disposal = £1,500.

    I hope this helped. However, this may be wrong.
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    (Original post by Arslaan)
    Hey there. I tried this question and it took me a couple of minutes to get my head around it. The answer may not be correct but it may be.

    STEP 1:- Read the information. It tells you that the Depreciation method is to be Straight-Line. Therefore, the amount is to be an fixed amount.

    STEP 2:- It tells you that the estimated usage will be 4 years. Put this against the Machinery at Cost = £60,000/4 years = £15,000 per annum.

    STEP 3:- This is where I got a little bit confused. The purchase was made on 1 March, 2004. So, it will have had to had (March 04 - Feb 05) 1 YEAR (March 05 - Feb 06) 2 Years Depreciation. HOWEVER what I do not know is that if they charge Depreciation in-between months. Assuming so, since the Machinery was sold in Sept 06, the third year would be (March 06 - Sept 06) I.E:- A TOTAL OF TWO YEARS AND SIX MONTHS.

    Multiply it by the Straight-Line figure = £15,000 x 2.5 = £37,500. Provision for Depreciation.

    You can even calculate the Profit or Loss on Disposal of the Machinery!

    NBV at sale date = (£60,000 - £37,500) = £22,500.
    Sale proceeds = £24,000.
    Profit on disposal = £1,500.

    I hope this helped. However, this may be wrong.
    I think the general rule in International Accounting Standards is to charge depreciation in the year of acquisition and not in the year of disposal in which case there will have been 2 years depreciation charged on the £60000 assets that were sold. The rate of depreciation would be:
    £60,000-£6000=£54000/4=£13500 PA. So total accumulated depreciation on the assets that were sold would come to £27000. That would make the NBV at disposal £33000. the sale proceeds being £24000, there would be a loss on disposal of £9000.
 
 
 
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