Dibble Limited purchased plant and equipment on 1 December 2016. The directors estimated that the plant and equipment would have a useful life of 5 years and a residual value of £31,000. The plant and equipment was depreciated on a reducing balance basis at a rate of 40% per annum. During the year ended 30 November 2019, depreciation of £57,600 was charged on this plant and equipment and the asset had a carrying amount on 30 November 2019 of £86,400. What was the original cost of this plant and equipment?

Question

Quizplus · Accepted Answer

The original cost can be calculated by working backwards using the reducing balance method. The carrying amount after 3 years of depreciation is £86,400. By applying the 40% depreciation rate in reverse, we can calculate the original cost: £86,400 / (1 - 0.4)^3 = £400,000.

Dibble Limited Purchased Plant and Equipment on 1 December 2016