Acca financial Accounting (FA) Study Text ac ca (FA)


Chapter 7  KAPLAN PUBLISHING



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Chapter 7 

KAPLAN PUBLISHING



 

131 

 

Solution to Illustration 1 

 

 

Year Depreciation 



charge 

×

 CA 



Depreciation 

charge 

Accumulated 

depreciation 

  



20% × $1,000 



200 

200 


20% × $(1,000 – 200) 

160 

360 


20% × $(1,000 – 360) 

128 

488 


20% × $(1,000 – 488) 

102 

590 


20% × $(1,000 – 590) 

82 

672 


 

 

 



Test your understanding 2 

 

Karen has been running a successful nursery school ‘Little Monkeys’ 



since 20X1. She bought the following assets as the nursery grew: 

 



a new oven for the nursery kitchen at a cost of $2,000 (purchased 

1 December 20X4). 

 

a minibus to take the children on trips for $18,000 (purchased 



1 June 20X4). 

She depreciates the oven at 10% straight line and the minibus at 25% 

reducing balance. A full year’s depreciation is charged in the year of 

purchase and none in the year of disposal. 



What is the total depreciation charge for the year ended 31 October 

20X6? 

A $2,531 

B $2.700 

C $4,231 

D $2,731 

 

 



 


 

Non-current assets: acquisition and depreciation 

132

 

KAPLAN PUBLISHING



 

 

Test your understanding 3 

 

The following information relates to Bangers & Smash, a car repair 



business: 

 

Machine 1 



Machine 2 

Cost $12,000 

$8,000 

Purchase date 

1 August 20X5 

1 October 20X6 

Depreciation method 

20% straight line pro 

rata 

10% reducing balance 



pro rata 

What is the total depreciation charge for the years ended 

31 December 20X5 and 20X6? 

 

20X5 20X6 

 $ 



A 2,400 



2,600 

B 1,000 


2,600 

C 2,400 


3,200 

D 1,000 


3,200 

 

8 Accounting 



for 

depreciation 

Whichever method is used to calculate depreciation, the accounting remains the 

same: 

Dr Depreciation expense (P/L) X 



Cr Accumulated depreciation (SFP) X 

 



The depreciation expense account is a profit or loss account and therefore 

is not accumulated. 

 

The accumulated depreciation account is a statement of financial position 



account and as the name suggests is accumulated, i.e. reflects all 

depreciation to date. 

 

On the statement of financial position it is shown as a reduction against 



the cost of non

­

current assets: 



 $ 

Cost X 


Accumulated depreciation 

(X) 


 ––– 

Carrying amount 

 

 



 


 

Chapter 7 

KAPLAN PUBLISHING



 

133 

 

Illustration 2 – Accounting for depreciation 

 

Santa runs a large toy shop in Windsor. In the year ended 31 August 



20X5, she bought the following non

­

current assets: 



 

A new cash register for $5,000. This was purchased on 1 December 



20X4, in time for the Christmas rush, and was to be depreciated at 

10% straight line. 

 

A new delivery van, purchased on 31 March 20X5, at a cost of 



$22,000. The van is to be depreciated at 15% reducing balance. 

Santa charges depreciation on a monthly basis. 

 


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