Bookkeeping Study week Q&A - Q15 Diminishing depreciation

blk71blk71 Registered Posts: 4
Hi
Question 15 on the AAT Adv Bookkeeping study help this week asked this question:
Deborah has purchased a state of the art food mixer for her business. Cost £2100 excluding vat.
After 5 years - residual value £300
Depreciation will be on diminishing balance basis @ 20% per annum.
What will the depreciation charge be for third year and the accumulated depreciation at the end of that year?
My answer: Depreciation charge for that year £230.40 / Accumulated Depreciation £878.40
The correct answer AAT have highlighted; Depreciation charge for that year £268.80 / Accumulated Depreciation £1024.80
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I cannot work out how I've have got this so wrong. Please can someone explain how the AAT answer is correct?
MUUUUCHHH appreciated.

Comments

  • davealucasdavealucas LondonMAAT Posts: 59
    Hi blk71,

    It appears you have fallen for the red herring. If you are going to depreciate using a diminishing balance basis you can ignore the residual value (a diminishing balance will always have a residual balance). The correct calculation will be:

    Year 1 Depreciation Charge £420.00 Accumulated £420.00
    Year 2 Depreciation Charge £336.00 Accumulated £756.00
    Year 3 Depreciation Charge £268.80 Accumulated £1,024.80
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