Unit 5 - Key Techniques Q22

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi folks, can anyone explain an issue I'm having with one of the key techniques questions.<BR><BR>Its question 22 (Hawsker Chemical).<BR><BR>The answer shows a DR balance in the "Plant and Machinery Depreciation Expense" account of £16,250 at 30/6/01 made up of:<BR><BR>£4,375 (Hydro 150 cropsprayer)<BR>£5,750 (Massey 7500 tractor)<BR>£6,125 (Hydro 200 cropsprayer - new acqusition)<BR><BR>Why?!<BR><BR>I thought that only the CURRENT years charge was shown in the depreciation expense account and transferred to the P&L at period end?<BR><BR>So in my mind, the only amount that should be showing in the "Plant and Machinery Depreciation Expense" account should be just £6,125 as this is the ONLY charge relating to the year ended 30/6/01? <BR><BR>The other two amounts shown above relate to depreciation charges incurred in the year ended 30/6/*00* so why are they shown in the expense account?<BR><BR>Am I going mad?<BR><BR>

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  • System
    System Posts: 100,534 🤖 Admin 🤖
    Unit 5 - Key Techniques Q22

    Remember that you need to depreciated assets EVERY year. I agree with you that the new acquisition will need to be depreciated (for the first time) this year, but so will all other assets still owned.<BR><BR>Graham Blott
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Unit 5 - Key Techniques Q22

    Thanks Graham. I understand assets need to be depreciated year on year until disposal, but why is this particular expense account still showing depreciation charges for the PREVIOUS year?<BR><BR>I thought that the expense account was transferred to the profit and loss account at the end of every accounting period so that only depreciation charges in the current period where shown in the expense account?<BR><BR>As I understand it - although the depreciation EXPENSE account is cleared off to the P&L account and the opening balance started from zero at the beginning of every new accounting period - ACCUMULATED DEPRECIATION is brought forward year on year as a BALANCE SHEET item.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Unit 5 - Key Techniques Q22

    I don't know the original question of Q22, but I do agree with Graham. The debit side of the account is consisted of net figures of the plant&Machinary, which is original cost minus accumulated depreciation to date, the credit side will be this year's depreciation charge for that item. The depreciation amount which later transfered to P&L account will be the total amount of the credit side, that is the total of three current year's depreciation figure. Hydro 150 cropsprayer, massey 7500 and hydro 200 cropsprayer are only three different items of P&M account. You were not wrong, I think you were focusing on the one figure for current year's depreciation which later on will transfered to P&L, but ignored that this one figure might consist the current year's deprecication charge for different items which are classfied as P&M.<BR><BR><BR>Hope this helps.<BR><BR><BR>Best regards<BR><BR><BR>Hong
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Unit 5 - Key Techniques Q22

    Yes mate - you are absolutely right. The year's charges are tarnsferred to P & L at end of the year. But I think that you are confussing what is happenoing here. <BR><BR>What is shown in the depreciation expenses account is NOT last year's charge (which as you say has been transferred to P & L) but THIS year's charge which (as the depreciation policy is the straight line method) happens to be the same amount as last year (and the year before, and the year before that).<BR><BR>I hope that makes sense but it is 11pm and I have just drunhk a very large glass of wine. (and I know that I have spelt drunk wrong - but it feels right).<BR><BR>Graham Blott
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Unit 5 - Key Techniques Q22

    Thanks so much people! I understand where I was going wrong now!<BR><BR>I think I would also like to get "drunhk" tonight after the week I've had!<BR><BR>Thanks again.

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