A Sole Trader owns a company vehicle which cost £10,000 at the beginning of year 1,and is depreciated at 25% reducing balance method.In year 2,the end of year accounts are being drawn up.Which of the following is the correct adjustment for the depreciation of the vehicle?

Question

Quizplus · Accepted Answer

The first year depreciation was £2,500. This leaves a Carrying Amount (or Net Book Value, NBV) of £7,500. So in the second year, 25% of £7,500 is £1,875. This is the annual depreciation charge and is shown in the income statement. The £2,500 from last year was dealt with last year and is NOT repeated in the Income Statement. The Carrying Amount is now £5,625.Next year, 25% of this, £1,406.25, will be the annual depreciation charge. Note that ALL adjustments affect both the income Statement AND the Statement of Financial Position.

A Sole Trader Owns a Company Vehicle Which Cost £10,000