BBP FSTP page 51 & 52.

Danielle Milton

In the test your learning (page 51 and 52 of the BPP text book) it has a question where the future is £12600 and is depreciated at 20% per annum on cost. The accumulated depr in 2007 was 3400 and you need to work out the 2008 figures. The answer on page 137 is
12600 cost. 5920 Accumulated Dept. 6680 carry amount.

12600 x 0.2 = 2520 deprecation per year and I understand that 3400 + 2520 = 5920. However, how can the depreciation for 2007 be 3400? It does not fit. One year depreciation is 2520 which is too low. However two years would be 5040 which is too high. You have to assume there was a part year depreciation however that does not fit either.

2520 / 12 = 210 so 210 per month. However, there is no combination of 2520 and 210 which can equal 3400 so that still does not work. How can the depreciation for 2007 be 3400 if the depreciation is 2520 per year? Is this an error in the book?

welshwizard

First of all, what does the task ask you to do? I believe it tells you to show the total carrying amount of the non-current assets that will appear in the statement fo financial position at 31 May 20X8. You have to assume that the information given on the situation before calculating the answer is correct. You are doing what many students do - 'over-thinking' things. You are not asked to check the previous calculations for accuracy just to take the figures and provide information as per the task requirements

There are a number of reasons why this situation could arise - including a change in depreciation policy. Whilst we all know about consistency, sometimes in order to provide reliable information, we may need to change the depreciation policy - maybe some of the assets will last longer than we thought, or, indeed a shorter time than expected. This could cause depreciation figures to change.

The key with any task is to RTFQ (Read The Full Quesiton) and answer it as per the requirements.