# Case Study 1 – Depreciation

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• Study Notes

### Diploma in Business Management & Entrepreneurship - Case Study 1 – Depreciation

• Topic Reviews
United States of America 09 April 2017
Tashika B.

No question

Turkey 09 April 2017
BabaJide Martins F.

Well explained!

Equatorial Guinea 09 April 2017
Alice B.

The calculation of the depreciation example was well understood and well explained to me unlike the previous example.

South Africa 09 April 2017
Morne V.

The accountant suggests that Basil calculates depreciation using the straight line method whilst suggesting that Sophie may wish to use the diminishing balance method.

Nigeria 09 April 2017
Sunday O.

Case study 1 - Depreciation

Uganda 09 April 2017
Odongo M.

Accounting -> Topics -> Balance day adjustments -> Case study 1 - Depreciation Case study 1 - Depreciation Basil Braveheart and Sophie Solitaire each buy a new four-wheel drive on the same day, 1 July 1998. They each pay \$43 000 plus \$2000 on road costs. Basil intends to use his vehicle to deliver antique furniture in nearby suburbs while Sophie will drive her vehicle to remote locations in her work as a geologist. At the end of the financial year they both visit an accountant for assistance with their income tax. Given the nature of their work, being self-employed, they are both able to claim the depreciation on their vehicles as a work related expense for their respective small businesses. The accountant suggests that Basil calculates depreciation using the straight line method whilst suggesting that Sophie may wish to use the diminishing balance method. The suggested rate of depreciation is 20% prime cost for Basil. Basil asks what 'prime cost' is, and is told it means 'straight line'. The accountant then informs Sophie that the diminishing balance method has a rate of one and a half times straight line, in this case 30%. When the vehicles were bought the estimated trade in or disposal value was \$15 000. Both Basil and Sophie ask for projected depreciation figures for the next three years. Required calculate the depreciation and accumulated depreciation figures for the next three years using both straight line and diminishing balance methods Sophie asks for her figures to be recalculated for six month accounting periods. Complete this task and comment on changes in the depreciation and accumulated depreciation amounts what accounting principle supports the use of alternative depreciation methods? State the principle and describe its meaning which accounting principle is breached if, after the first year, Basil chooses to change to the diminishing balance method? Sophie and Basil are using different methods of depreciation. Give two reasons why each method may be used. explain two benefits to Sophie of reporting more frequently than once a year

Uganda 08 April 2017
Saul K.

I like diminishing balance method

Nepal 08 April 2017
Manish K.

information is clearly given.

Ghana 08 April 2017
Emmanuel A.

good

Morocco 08 April 2017

What is depreciation of a case study?

• Text Version

### Diploma in Business Management & Entrepreneurship - Case Study 1 – Depreciation

Accounting - Topics - Balance day adjustments - Case study 1 -
Depreciation

Case study 1 - Depreciation

Basil Braveheart and Sophie Solitaire each buy a new four-wheel drive on
the same day, 1 July 1998. They each pay \$43 000 plus \$2000 on road costs.
Basil intends to use his vehicle to deliver antique furniture in nearby
suburbs while Sophie will drive her vehicle to remote locations in her work
as a geologist.

At the end of the financial year they both visit an accountant for
assistance with their income tax. Given the nature of their work, being
self-employed, they are both able to claim the depreciation on their
vehicles as a work related expense for their respective small businesses.

The accountant suggests that Basil calculates depreciation using the
straight line method whilst suggesting that Sophie may wish to use the
diminishing balance method.

The suggested rate of depreciation is 20% prime cost for Basil. Basil asks
what \'prime cost\' is, and is told it means \'straight line\'.

The accountant then informs Sophie that the diminishing balance method has
a rate of one and a half times straight line, in this case 30%.

When the vehicles were bought the estimated trade in or disposal value was
\$15 000.

Both Basil and Sophie ask for projected depreciation figures for the next
three years.

Required

* calculate the depreciation and accumulated depreciation figures for the
next three years using both straight line and diminishing balance methods

* Sophie asks for her figures to be recalculated for six month accounting
periods. Complete this task and comment on changes in the depreciation and
accumulated depreciation amounts

* what accounting principle supports the use of alternative depreciation
methods? State the principle and describe its meaning

* which accounting principle is breached if, after the first year, Basil
chooses to change to the diminishing balance method?

* Sophie and Basil are using different methods of depreciation. Give two
reasons why each method may be used. explain two benefits to Sophie of
reporting more frequently than once a year

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