During the financial year ending 31 May 2020 Mkhize Ltd manufactured a machine for its own use. Costs incurred are summarised as follows: Direct materials R 4 500 000 Direct labour R3 250 000 Production overheads 75% of labour cost. The machine was completed and put into use on 1 December 2019. All machines are depreciated at a rate of 15% per annum on the reducing balance method. Mkhize Ltd applies a 35% mark‐up on cost in determining the selling price of goods. Scenario 2 During 2020 the directors of Chana Ltd decided to value its industrial plant to market value. The plant was acquired on 1 June 2015 at a cost of R45 000 000 and had an estimated useful life of 15 years on the date of acquisition. The plant was valued at R41 500 000 on 1 June 2019. Plant is carried using the revaluation method and depreciation is on the straight‐ line basis. Required: Q.4.1 Calculate the depreciation charge for the year ended 31 May 2020 for both scenarios, as well as the carrying value of both items as at 31 May 2020
During the financial year ending 31 May 2020 Mkhize Ltd manufactured a machine for its own
use. Costs incurred are summarised as follows:
Direct materials R 4 500 000
Direct labour R3 250 000
Production overheads 75% of labour cost.
The machine was completed and put into use on 1 December 2019. All machines are
Mkhize Ltd applies a 35% mark‐up on cost in determining the selling price of goods.
Scenario 2
During 2020 the directors of Chana Ltd decided to value its industrial plant to market value.
The plant was acquired on 1 June 2015 at a cost of R45 000 000 and had an estimated
useful life of 15 years on the date of acquisition. The plant was valued at R41 500 000 on
1 June 2019. Plant is carried using the revaluation method and depreciation is on the
straight‐ line basis.
Required:
Q.4.1 Calculate the depreciation charge for the year ended 31 May 2020 for both
scenarios, as well as the carrying value of both items as at 31 May 2020.
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