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 sale left out of the books entirely
- BA wrongly added ledger column
- CA balance copied to the wrong column
- DA debit posted without a matching credit
2.Financial accountingHard
A firm with spare capacity gets a one-off order at €35 per unit. Variable cost is €30 and full cost including fixed overhead is €42. Assuming no other effects, should it accept?
- AYes, each unit adds €5 contribution
- BNo, the order makes a €7 loss per unit
- CYes, but only if the price exceeds €42
- DNo, the price is below full cost
3.DepreciationMedium
A production line costs €60 000, has a useful life of 6 years and a salvage value of €6 000. Using the double-declining-balance method (without switching to straight-line), find the depreciation charge D in year 2.
cost = €60 000life = 6salvage = €6 000year = 2
D = €
4.DepreciationHard
A machine costs €50 000, has a useful life of 6 years and a salvage value of €10 000. Using the sum-of-the-years’-digits method, find the depreciation charge D in year 4.
cost = €50 000life = 6salvage = €10 000year = 4
D = €
3Solutions
1.Financial accounting
Answer: A · 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
A · A sale left out of the books entirely
2.Financial accounting
Answer: A · Yes, each unit adds €5 contribution
Why this is the answer
Fixed costs do not change, so the order adds €35 − €30 = €5 per unit to profit. Risks such as upsetting regular customers should still be considered.
Answer
A · Yes, each unit adds €5 contribution
3.Depreciation
Answer: D = 13333 €
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
2/6 = 0.3333
Year by year
year 1: 0.3333·60 000.00 = €20 000.00
year 2: 0.3333·40 000.00 = €13 333.33
Answer
D = €13 333.33
4.Depreciation
Answer: D = 5714 €
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
(6 − 4 + 1)/21 = 3/21
Depreciation
D = 40 000·3/21 = €5 714.29
Answer
D = €5 714.29
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