# Depreciation charge

Registered Posts: 72 ? ? ?
Hi

does anyone understand why the depreciation charge is 1500

Question

A new vehicle has been acquired VAT can be reclaimed on this vehicle
The cost of excluding VAT was 7500 this was paid from the bank
The residual value is expected to be 1500 excl VAT
The depreciation policy for vehicle is 25% per annum on a straight line basis
Deprec has already been entered for existing vehicles

Make entries for
a)purchase of new vehicle
b) deprecia on new vehicle

According to my calcs deprec is 1875 but the answer says depreciation is 1500? Not sure what to do with residual value

• Registered Posts: 1,189
The cost of Vehicle minus the residual value x 25%

7500 - 1500 x 25% = 1500

On straight line method you always take any residual value away from the cost before calculating the depreciation.

Hope this helps

Jan
• Registered Posts: 72 ? ? ?
Sorry I still don't understand. I looked up staight line method and the formula for calc deprec was (cost-residual value)/useful economic life. I'm not quite sure about your working out?
• AAT Licensed Accountant Posts: 244 ? ? ?
Hia

its 7500-1500=6000 (price - residual value)

6000 x25%=1500(times by the depreciation)

therefore depreciation is £1500

does this help explain?
Nicola Donnelly ,MAAT, MIP, CIMA Dip MA

Email: [email protected]
Facbook Page: MEND Accounting
Blog: http://wannabeanaccountant.blogspot.co.uk
Website: http://www.mendaccounting.co.uk
• Registered Posts: 1,189
That is correct if you are given the life, so if it says you keep the item for 4 yrs you would divide the cost - residual value by 4 to find yearly depreciation, but in this case it gave you a %

7500-1500 = 6000

6000/4 = 1500

or

7500 - 1500 x 25% = 1500

It is just they word the questions differently

Jan
• Registered Posts: 72 ? ? ?
Yeah thanks I get it now