Question

On 31 August 2018,Musk Traders purchased a machine on credit for a cost price of R402 500(including VAt at 15%). Machinery is depreciation over six years according to the straight - line basis and there is no residual value on this machine, as it is highly specialized. Musk traders has a 30 June year-end

Calculate the depreciation and accumulated depreciation for 2019 and 2020.

Answer 1

Depreciation should be on a value net of VAT.

Cost + (Cost * VAT) = 402,500

Cost + Cost * 15% = 402,500

1.15 * Cost = 402,500

Cost = $350,000

Depreciation is straight line for 6 years so per year is = 350,000/6 = $58,333

2019

In 2019 the June year end from date of purchase will be 10 months.

Depreciation in 2019

= Yearly depreciation * 10/12 months

= 58,333 * 10/12

= $48,611

Accumulated Depreciation 2019

= $48,611

2020

2020 will be a complete year so depreciation

= $58,333

Accumulated Depreciation 2020

= 2019 + 2020

= 48,611 + 58,333

= $‭106,944‬