Sohail runs a delivery business which charges a premium compared with its competitors because it offers a very fast and efficient service.He keeps delivery vans for 2½ years only, in order to ensure high levels of reliability.He estimates, on the basis of past experience, that the residual value of his vans is 45% of their cost price.He depreciates each van over the 2½ year period of ownership on the straight-line basis, calculating depreciation for each full month of ownership. Sohail buys a new van on 17 July 20X1 for £17 260.What is the charge for depreciation in respect of this van for inclusion in Sohail's statement of profit or loss for the year ended 31 October 20X1 (to the nearest £)?
A)£777
B)£1266
C)£949
D)£1726

Question

Quizplus · Accepted Answer

The depreciation charge for the year ended 31 October 20X1 is calculated as follows:1. Calculate the monthly depreciation expense:   - Cost of the van: £17,260   - Residual value: 45% of £17,260 = £7,767   - Depreciable amount: £17,260 - £7,767 = £9,493   - The van is kept for 2½ years (30 months), so monthly depreciation = £9,493 / 30 = £316.432. Calculate the number of full months of ownership up to 31 October 20X1:   - The van was bought on 17 July 20X1, so it was owned for August, September, and October, which equals 3 full months.3. Calculate the depreciation charge for the period:   - Monthly depreciation (£316.43) * Number of full months (3) = £949.29Therefore, the depreciation charge for the year ended 31 October 20X1, rounded to the nearest £, is £949.

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