a) Buildings are depreciated on a straight line basis from 31st dec 2006 (book value :$555,000) to 31st dec 2010 (residual value : $100,000) ie over a period of 4 years. So the depreciation charge should be (555000-100000)/4 = $113.75 but in solutions it is given as (555000-100000)/5 = $91 ? b)the trial balance is dated 31st dec 2007 so I am assuming that depreciation given for plant and machinery ($ 140 ) is upto 31st dec 2007(since no date is mentioned separately). But in the solutions, the notes* indicate that this depreciation is upto 31st dec 2006 only(*income statement notes 2) So do we always have to assume that the depreciation charge given in the trial balance is for upto a year earlier than the date for the income statement?
Hi Good spot on (a) - you're absolutely correct - the depreciation should be over 4 years as you say (rather than the 5 years that it currently shows). I'll update the CT2 corrections document - thank you! For (b), the way depreciation is shown is actually how it would typically be shown in a trial balance. So, yes, for a trial balance at 31 Dec 2007, the depreciation shown would normally be that up to 31 Dec 2006 (it represents the figure that was "brought forward" from the 31 Dec 2006 balance sheet to open the 2007 trial balance). Working out the depreciation for 2007 is part of the process of drawing up the 2007 accounts. There's generally info given in the notes to the trial balance indicating the depreciation policy for the current year to enable us to work out this year's depreciation figure. Hope this helps - best of luck with the studying Lynn
