Depreciation Goal Seekers Method

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
I was wondering are we going to be assesed on FRA on calulating depreciation on a reducing balance method on a monthly basis where the first month depreciation is the highest than the 12th month depreciation is the lowest but by adding all the 12th months depreciation will be the same as calculating yearly depreciation on book value. Or do we just caluluate the monthly deprecation equally where all the 12 Months of Depreciation will be equal in value.

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    That's far too complicated. Assessed on the basis that the annual dep'n charge is allocated evenly across the 12 months.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    Where depreciation is split equally over the expected life of the asset is the straight line method.

    Reducing balance is, as you say, where the 1st month is the highest charge and the last the lowest.

    With both methods, the charge will be the same over the life of the asset.

    It's possible the exam could test you on either method and I would revise both.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    Phunkyphantom is quite correct, but I repeat, in the assessment the reducing balance method will be calculated on an annual basis (reducing each year) but WILL NOT be spread other than equally through the months in the year.

    In practice, and in most exam questions, the policy adopted is to charge a full year's charge in the year of acquisition and none in the year of disposal.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    Thanks for that, out of interest what is the formula to calculate depreciation on a reducing balance method where the first month is the highest and the 12th months would be the lowest? I know sage line 50 applies this method and there is a formulae on excel. But I can not figure how to calculate it manualy.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    I'm not entirely sure what you're asking, but the formula for calulating the rate of depreciation for the reducing balance method is
    depreq.gif
    s = residual value
    c = cost
    n = time period for depeciation

    n is usually in years but months or even quarters could equally be used if you need to calculate the rates for shorter periods.

    You won't need to know this for intermediate level, rates will always be given. I've also never come across an excersise or question where you're expected to calculate part year's depreciation on reducing balances.

    Chris
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Depreciation Goal Seekers Method

    Thanks a lot I really appreciate this.

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