Msibi Limited purchased machinery at R500 000 on 30 June 2013. It is the company’s policy to depreciate fully machinery of this kind using straight line method at 20% p.a. Msibi Limited’s year end date is 31 September of each year. In August 2015, the machinery developed a mechanical fault and on 31 September 2015 the directors decided to test it for impairment. The following details were provided by the company’s financial director: Value in use of the machinery in its state now is R250 000 The fair value of the machinery reference to the market is R258 000 Selling this asset will cost the company R10 000 The recoverable amount of the
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Q13
Msibi Limited purchased machinery at R500 000 on 30 June 2013. It is the company’s policy to
The following details were provided by the company’s financial director:
- Value in use of the machinery in its state now is R250 000
- The fair value of the machinery reference to the market is R258 000
- Selling this asset will cost the company R10 000
The recoverable amount of the machinery as at 31 September 2015 would be?
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