HELP AP1 exam tomorrow and stuck

jojo1979 Registered Posts: 75 ? ? ?
Hiya all.

I have my ap1 exam tomorrow and have just been doing the KAplan practice paper and ithought i was ok on depreciation and putting it to the accounts but i have come across the following question and for the life of me cannot figure out where the answers have come from. Can anyone help?

THe question is

A new commercial vehicle has been aquired and VAT can be claimed on this vehicle
The cost of the vehicle inc VAT was £9400
The residual value ex VAT is expected to be £1500
The Depreciation polisy for vehicles is 25% per annum on a straight line basis
Depreciation has already been entered into the accounts on existing vehicles

The answer is showing as

Vehicles at cost account

Bal bd Dr 27500
Bank Dr 800

Provision for Depreciation account

Bal bd CR 13750
Depreciation charge Cr 1625

Depreciation Chrge

Bal bd Dr 6875
Accum Depn Dr 1625

Can anyone explain where the figs of 800 and 1625 came from

Thank you



  • Rinske
    Rinske Registered Posts: 2,453
    The purchase price you posted is including VAT. Assuming that the VAT rate is 17.5%, the value to be recorded in the books for the asset is 8,000. (9,400 / 1.175 = 8,000).

    You would record the 8,000 in the vehicles at cost account and I think the 800 there is a typing error and there should be an extra 0.

    The depreciation is a straight line basis. The cost of the asset is 8,000 and the residual value is 1,500 (both excluding VAT). The difference is 6,500, you want to depreciate this over 4 years (aka 25% of cost per year). 6,500 * 25% = 1,625 depreciation per year.

    Hope this helps,

  • jojo1979
    jojo1979 Registered Posts: 75 ? ? ?
    Ah right i understand it now, thank you so much for your help. I think i have looked at things so much tonight i am making silly mistakes and missing silly little things

    Thank you again

  • Rinske
    Rinske Registered Posts: 2,453
    It sounds to me like you're all done studying and should relax before the exam, rather than doing more study!

    Put the books away and find something relaxing to do instead! :)
  • sharumba
    sharumba Registered Posts: 33 ? ? ?
    All the best for tomorrow!!! I'm sure you'll be fine!

    Let us know how you find it and then i'll know what to look forward to in a weeks time..

  • kirstym01
    kirstym01 Registered Posts: 43 ? ? ?
    Goodluck Jo, will be thinking of you tomorrow! What time is it?
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