DEPRECIATION Week 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. Cost Purchased Life Annual Depreciation Charge Accumulated 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. Cost£17400 Purchased1/1/20X5 Life5 Years Annual Depr Charge£17400 ÷ 5 = £3480 Accumulated 31/12/X7X5 £3480 X6 £3480 X7 £3480 Total £10440 Carrying Value£ £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 Cost Purchased Life Scrap Value Annual Depr Charge Accumulated 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 Cost£12,800 Purchased1/1/20X6 Life Scrap Value 4 Years £2,000 Annual Depr Charge£12,800 - £2,000 = £10,800 £10,800 ÷ 4 = £2,700 Accumulated 31/12/X7X6 £2,700 X7 £2,700 Total £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 Cost Purchased Life Residual Value Annual Depr Charge Accumulated 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 Cost£4,600 Purchased1/1/20X7 Life Residual Value 3 Years £700 Annual Depr Charge£4,600 - £700 = £3,900 £3,900 ÷ 3 = £1,300 Accumulated 31/12/X7One 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. Cost Purchased Annual Depr Charge Accumulated 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. Cost£24,600 Purchased1/4/X6 Annual Depr Charge£24,600 x 20% = £4,920 Accumulated 31/3/X7One 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 Cost Purchased Annual Depr Charge 25% Accumulated 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 Cost£18,700 Purchased1/4/X4 Annual Depr Charge 25%X5 £18,700 x 25% = £4,675 X6 £14,025 (£18,700 - £4,675) x 25% = £3,506 X7 £10,519 (£14,025 – £3,506) x 25% = £2,630 Accumulated 31/3/X7 X5 £4675 X6 £3506 X7 £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. Cost£3,800 Purchased1/4/X5 Annual Depr Charge 30%X6 £3800 x 30% = £1140 X7 £2660 (£ £1140) x 30% = 798 Accumulated 31/3/X7 X6 £1140 X7 £798 £1938 Carrying Value£ £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 Bank400,000 Bank 400,000

Depreciation - Expense Accumulated Depreciation

Depreciation - Expense Year 1 Charge60,000 Accumulated Depreciation Year 1 Charge60,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000

Year 2

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Year 2 Charge60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000 Year 2 Charge60,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Year 2 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000 Year 2 Charge60, ,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Year 2 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000 Balance c/d120,000Year 2 Charge60, ,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Year 2 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000 Balance c/d120,000Year 2 Charge60, ,000 Balance b/d120,000

Depreciation - Expense Year 1 Charge60,000SOCI60,000 Year 2 Charge60,000SOCI60,000 Accumulated Depreciation Balance c/d60,000Year 1 Charge60,000 Balance b/d60,000 Balance c/d120,000Year 2 Charge60, ,000 Balance b/d120,000 SOCI SFP

Balance sheet extract Year 1 Non Current Assets Cost Depreciation CV Machinery£400,000£60,000£340,000

Balance sheet extract Year 1 Non Current Assets Cost Depreciation CV Machinery£400,000£60,000£340,000 Year 2 Non Current Assets Cost Depreciation CV Machinery£400,000£120,000£280,000

Question 6 – Sues Solarium Extension questions 7-10