At 1 January 2021, Daniele Limited held plant and equipment at a cost of £400,000 on which £220,000 depreciation had been charged up to that date. The directors of the company are planning to purchase new plant and equipment on 1 April 2021 costing £50,000 and new machinery costing £60,000 on 1 August 2021. The company depreciates plant and equipment on the straight line basis over 4 years. Depreciation is calculated on a monthly basis. All plant and equipment is expected to have a residual value of £nil. There are no disposals of plant and equipment planned for the year to 31 December 2021. What is the carrying amount of plant and equipment that will appear in Daniele Limited's budgeted statement of financial position at 31 December 2021?

Question

Quizplus · Accepted Answer

The carrying amount is calculated by deducting accumulated depreciation from the cost. Initial carrying amount on 1 Jan 2021 is £180,000 (£400,000 - £220,000). Depreciation for the year is £100,000/12 per month. For the existing plant, depreciation for 12 months is £100,000. For the new plant (£50,000), depreciation for 9 months is £9,375. For the new machinery (£60,000), depreciation for 5 months is £6,250. Total depreciation for the year is £115,625. The carrying amount at 31 Dec 2021 is £180,000 + £50,000 + £60,000 - £115,625 = £174,375.

At 1 January 2021, Daniele Limited Held Plant and Equipment