Depreciation charge

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

Comments

  • janwal
    janwal 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
  • sscors
    sscors 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?
  • nicd1981
    nicd1981 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
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  • janwal
    janwal 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
  • sscors
    sscors Registered Posts: 72 ? ? ?
    Yeah thanks I get it now
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