Financial Statements Help

Katie2014

Hi, if possible can someone please help with this question from the AAT's 2nd Practice Assessment:

Lingfield Ltd purchases a machine for £20,000 on 1.7.20X0. The machine is estimated to have a useful economic life of 4 years after which is can be sold for £4,000. The company depreciates the machine using the straight line method, charging a full years depreciation in both the year of purchase and sale. Lingfield Ltd prepares its financial statements to 30 June each year. What will the carrying amount of the machine be at 30 June 20X3?

I know this is most probably pretty straight forward however I have my financial statements exam this Sat and my brain is just at a blank and is refusing to work!

Thank you.

Lucy_M

Hiya,

So deduct the residual value (£4000) from the purchase price and then divide the balance by the number of years of useful economic life.

£20000 - £4000 = £16000 / 4 = £4000 depreciation per annum.

Then depreciate for the relevant years, this is the tricky bit, working out the dates...

Depreciate at the end of the year so 30/6/01 30/6/02 and 30/6/03 = 3 years depreciation (£12000)

Therefore the carrying amount of the machine will be £20000 - £12000 = £8000

Good luck for Saturday!

xx

Katie2014

Hi Lucy, thank you again! That has really helped.

Katie