In each of the following situations discuss the most appropriate method of depreciation giving reasons for your
Question:
In each of the following situations discuss the most appropriate method of depreciation giving reasons for your choice.
Land and buildings: The land was purchased for £300000 and £400000 was spent on the erection of the factory and office accommodation.
Motor vehicles: The business owns a fleet of cars and delivery vans all of which were bought new. The owners have decided to trade in the vehicles for new models after four years or 60000 miles, whichever is sooner. The anticipated mileage figures are 12 000 miles per annum for the cars and 20000 miles per annum for the vans.
Plant and machinery: The plant and machinery owned by the business can be broadly classified into three types as follows.
Type 1: Highly specialist machinery used for supplying roller bearings to Manicmotors Ltd. The contract for supply is for five years, after which it may be renewed at the option of Manicmotors. The renewal would be on an annual basis. The machinery is so specialist that it cannot be used for any other purpose. It has an expected useful life of ten years and the residual value is likely to be negligible.
Type 2: Semi-specialist machinery which is expected to be productive for ten years and have a residual value of 10% of its original cost.
However, other firms operating similar machines have found that after the first three years it becomes increasingly more costly in terms of repairs and maintenance to keep machinery of this type productive.
Type 3: General purpose machinery which has an estimated useful life of 80 000 running hours. Based on present levels of production the usage is 8000 hours a year but as from next year this is expected to rise to 12 000 hours a year if the sales forecasts are correct.
Step by Step Answer:
Accounting In A Business Context
ISBN: 978-0412375101
1991st Edition
Authors: AIDAN BERRY And ROBIN JARVIS