Depreciation
- Straight-line
- (cost − salvage)/life
- Double-declining balance
- 2/life × book value at the start of the year
- Sum of the years’ digits
- (cost − salvage) × remaining life/SYD
- SYD
- n(n + 1)/2
- Book value
- cost − accumulated depreciation
Financial Accounting: cram pack
Formula sheets, the key method steps for every topic and 4 practice problems, with full solutions at the back.
1Formulas and methods
2Practice problems
1.Financial accountingMedium
Which error will NOT be revealed by a trial balance?
- AA wrongly added ledger column
- BA debit posted without a matching credit
- CA balance copied to the wrong column
- DA sale left out of the books entirely
2.Financial accountingHard
An asset has a carrying amount of €500,000, fair value less costs of disposal of €380,000 and value in use of €420,000. What impairment loss is recognised?
- A€80,000
- B€120,000
- C€0
- D€200,000
3.DepreciationMedium
A machine costs €50 000, has a useful life of 10 years and a salvage value of €2 500. Using the double-declining-balance method (without switching to straight-line), find the depreciation charge D in year 2.
cost = €50 000life = 10salvage = €2 500year = 2
D = €
4.DepreciationHard
A machine costs €50 000, has a useful life of 10 years and a salvage value of €2 500. Using the sum-of-the-years’-digits method, find the depreciation charge D in year 4.
cost = €50 000life = 10salvage = €2 500year = 4
D = €
3Solutions
1.Financial accounting
Answer: D · A sale left out of the books entirely
Why this is the answer
An error of omission leaves both sides unrecorded, so totals still agree. Single-sided postings and addition errors make the trial balance differ.
Answer
D · A sale left out of the books entirely
2.Financial accounting
Answer: A · €80,000
Why this is the answer
Recoverable amount = max(€380,000, €420,000) = €420,000. Impairment = €500,000 − €420,000 = €80,000.
Answer
A · €80,000
3.Depreciation
Answer: D = 8000 €
Depreciation spreads the cost of an asset over its useful life. Straight-line: (cost − salvage value)/life every year. Double-declining balance: 2/life times the book value at the start of each year, so the charge falls each year (salvage is not subtracted, but the book value never goes below it). Sum-of-the-years’-digits: (cost − salvage) × remaining life/(1 + 2 + … + n).
Rate
2/10 = 0.2
Year by year
year 1: 0.2·50 000.00 = €10 000.00
year 2: 0.2·40 000.00 = €8 000.00
Answer
D = €8 000.00
4.Depreciation
Answer: D = 6045 €
Depreciation spreads the cost of an asset over its useful life. Straight-line: (cost − salvage value)/life every year. Double-declining balance: 2/life times the book value at the start of each year, so the charge falls each year (salvage is not subtracted, but the book value never goes below it). Sum-of-the-years’-digits: (cost − salvage) × remaining life/(1 + 2 + … + n).
Fraction for year 4
(10 − 4 + 1)/55 = 7/55
Depreciation
D = 47 500·7/55 = €6 045.45
Answer
D = €6 045.45
ExamProblems · examproblems.com/courses/financial-accounting