ExpertEasy1 markShort Answer
ACCA · Question 52 · Recording Transactions: Tangible Assets
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the correct depreciation expense for the machine for the year ended 30 September 20X6 (in $).
Section B - Case 2
Scenario: EcoBuild Ltd is preparing financial statements for the year ended 30 September 20X6. Draft profit before tax is $450,000. Adjustments required:
- A machine costing $120,000 bought on 1 April 20X6 was incorrectly expensed in full. Depreciation is 20% straight-line (pro-rata).
- Closing inventory was undervalued by $15,000.
- An allowance for receivables of $8,000 needs to be created.
- Rent of $12,000 paid for the quarter ending 30 November 20X6 was fully expensed.
Calculate the correct depreciation expense for the machine for the year ended 30 September 20X6 (in $).
How to approach this question
Calculate annual depreciation: $120,000 * 20% = $24,000. Pro-rate for the months owned: 1 April to 30 Sept = 6 months. $24,000 * 6/12 = $12,000.
Full Answer
The machine was purchased on 1 April 20X6. The financial year ends on 30 September 20X6, meaning the machine was owned for 6 months. Annual depreciation is $120,000 * 20% = $24,000. Pro-rated for 6 months: $24,000 * (6/12) = $12,000.
Common mistakes
Charging a full year's depreciation ($24,000).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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