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ACCA Applied Knowledge · Financial Accounting · Tangible non-current assets

Harlow Co has a class of property, plant and equipment (PPE) measured using the cost model. At 31 December Year 5 the class had a cost of $840,000 and accumulated depreciation of $310,000. During Year 5 additions were $120,000 and disposals at cost were $60,000 with accumulated depreciation of $40,000 on those disposals. The depreciation charge for Year 5 was $90,000. What accumulated depreciation should Harlow show at 1 January Year 5 in the IAS 16 reconciliation of the carrying amount?

Opening accumulated depreciation is $260,000. Closing accumulated depreciation of $310,000 equals opening plus the year's charge of $90,000 less the $40,000 released on disposals, so opening is 310,000 minus 90,000 plus 40,000, which gives $260,000.

  1. A$260,000
  2. B$220,000Correct
  3. C$300,000
  4. D$180,000

Explanation

Closing accumulated depreciation = opening + charge - depreciation on disposals. So opening = 310,000 - 90,000 + 40,000 = 260,000. Check: 260,000 + 90,000 - 40,000 = 310,000. Distractor $220,000 arises from subtracting the disposal depreciation instead of adding it back (310 - 90 - 40 = 180 is another error); $300,000 comes from ignoring the charge and disposals incorrectly.

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