Daisy runs a small floristry business.She depreciates shop fixtures on the straight-line basis over four years, and assumes that the fixtures will have no value at the end of that period.The following balances were included in Daisy's statement of financial position in respect of shop fittings at 31 January 20X4: On 1 February 20X1, when she started the business, she bought fixtures at a cost of £20 000.One year later, on 1 February 20X2, she spent a further £10 000.She charges 1/12^th of the annual depreciation charge for each complete month of ownership.
On 1 August 20X4, Daisy disposed of all of her 20X1 purchase of shop fittings for £600.On the same day she bought replacement fittings for £25 000.
What is the total charge to Daisy's statement of profit or loss in respect of these transactions for the year ended 31 January 20X5?

Question

Daisy runs a small floristry business.She depreciates shop fixtures on the straight-line basis over four years, and assumes that the fixtures will have no value at the end of that period.The following balances were included in Daisy's statement of financial position in respect of shop fittings at 31 January 20X4:

On 1 February 20X1, when she started the business, she bought fixtures at a cost of £20 000.One year later, on 1 February 20X2, she spent a further £10 000.She charges 1/12^th of the annual depreciation charge for each complete month of ownership.
On 1 August 20X4, Daisy disposed of all of her 20X1 purchase of shop fittings for £600.On the same day she bought replacement fittings for £25 000.
What is the total charge to Daisy's statement of profit or loss in respect of these transactions for the year ended 31 January 20X5?

Quizplus · Accepted Answer

First, we need to calculate the annual depreciation charge for the shop fixtures.

Total cost of fixtures = £20,000 + £10,000 = £30,000

Depreciation charge per year = £30,000 / 4 years = £7,500

Depreciation charge per month = £7,500 / 12 months = £625

For the year ended 31 January 20X5, we need to consider the following transactions:

1. Daisy disposed of her 20X1 purchase of shop fittings for £600 on 1 August 20X4.

The depreciation charge for the 20X1 fixtures up to 1 August 20X4 would be:

Depreciation charge = £625 x 42 months (from Feb 20X1 to Jul 20X4) = £26,250

The net book value (NBV) of the fixtures as at 1 August 20X4 would be:

NBV = Cost - Accumulated Depreciation = £20,000 - £26,250 = -£6,250

As the NBV is negative, there is a loss on disposal of £600 - (-£6,250) = £6,850

2. Daisy bought replacement fittings for £25,000 on 1 August 20X4.

The depreciation charge for the replacement fixtures for the remainder of the year (7 months) would be:

Depreciation charge = £625 x 7 months = £4,375

Therefore, the total charge to Daisy's statement of profit or loss in respect of these transactions for the year ended 31 January 20X5 would be:

Loss on disposal of 20X1 fixtures = £6,850
Depreciation charge for replacement fixtures = £4,375

Total charge = £6,850 + £4,375 = £10,225

Rounded up to the nearest £, the answer is B) £10,025.

Daisy Runs a Small Floristry Business