Ireland Need help with a small trading profit and loss question

[millish23]

Ok I have this in front of me so I'll just type what it says. "A machine was purchased in 2006 and was scrapped in 2010. The accumulated depreciation is 2880. It is the policy of the company to charge depreciation for the full year in year of acquisition and none in year of disposal". How would you go about this. Thanks

 

[FrazMan]

If im not mistaken, ur depreciation is realised the same year you bought the machine. Your balance sheet would therefore contain:

Assets: 2880
Accumulated depreciation: 2880
Net Assets: 0

(Note: Thats assuming u dont have any other assets.)

Your Income Statement would also include a section for "Annual Depreciation" in the "Expenses" section.

Regarding your original question, if you estimate that the useful life of the asset is 4 yrs, then you should expense the cost of it over 4 yrs, rather than a single lump sum cost as your not accurately reflecting "using up" the asset.

I have also omitted the possibility that there would be some residual value left over in the asset when you come to scrap it.

Ive only just started learning this, so please take what i have written above with a pinch of salt. To the best of my knowledge its correct.