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Scrap Value in Reducing Balance Method

The topic in this post is related to ACCA F7 Financial Reporting subject. I will try to highlight a concept which is sometimes overlooked by students with respects to a depreciation method called reducing balance method.

What is Reducing Balance Method?

We all know that the reducing balance is a depreciation method which is used as an alternative to the commonly used straight line method. This method assumes that an asset loses more value during the earlier years of its life. Consequently, a depreciation rate (%) for reducing value is used, resulting in less value being lost each year. It is often used for tax purposes, but less often in published accounts.

What is often overlooked?

Although students have the understanding of the method and know how to use this method to depreciate a certain fixed asset, what is often overlooked is whether this method takes into account of the scrap value of the asset. For example, if a reducing balance of 25% is used to depreciate an asset, some students are often unsure if this 25% considers the scrap value(the residual value) of the asset at the end of its life.

The Fact

The fact is that this 25% is derived after taking into consideration of the scrap value. Let's take an example. The cost of the asset is $20,000. The scrap value is 2,000. Life is 8 years. If we input the given information in the following formula, we will get to the answer of 25% reducing balance.

1 - n √(s/c) ,

where

n is life,
s is scrap value,
c is cost.

25% is derived after taking account of the scrap value $2,000. If the scrap value is zero, the depreciation will be 100% which will never reduce the cost of the asset. Thus what is clear is that scrap value is critical in deriving the reducing balance percentage and that without the scrap value, the method will be very unlikely to be used.

Conclusion

The reducing balance method always uses the scrap value.

99 Years Lease

Does this question ever cross your mind before?

"What is the legal position of HDB owners in Singapore after the lease of 99 has run out?"

The fact is that real property in Singapore is classified as leasehold or freehold which applies to both landed and non-landed properties. Freehold property is held by the owner in perpetuity (unless another MRT line is extended to your neighborhood and your property has to make way for it). Leasehold properties typically run for 99 years but may also extend for up to 999 years.

Let's assume that either 99 years or 999 years period is running out tomorrow. What is going happen to the owners? Are they supposed to quietly pack their things and move out quickly? Will the government of Singapore enforce its rights and ask the owners to move out immediately? Is there any binding legal case in a Singapore court which is related to this enforcement before?

Although it can be said that Singapore Government retains the right to take over the property on the expiry of the lease period, chances are that most properties are likely to be extended or renewed so that Singaporeans can continue to live there. In fact there is no legal case that is tested on this topic yet and thus nobody is certain about this whole situation. Since Singapore gained Independence about half a century ago, this issue is still in the grey area. Let's watch the story unfold over the times.

Friday Vs Monday

Politician and accountant

It is easy for a beggar to tell the difference between a politician and an accountant. If he asks a man for money for a meal saying that he hasn't eaten all day and the man replies, "Sorry, no. But things will be better for you tomorrow" - that man must be a politician.

If the beggar asks the same question and the man replies, "Sorry, no. But I am interested to know how your financial situation compares with the same period last month" - that man must be an accountant.

Note: The source is here.

Friendship

Ah Beng

Ah Beng bought a new mobile.
He sent a message to everyone from his Phone Book & said,
'My Mobile No. Has changed.
Earlier it was Nokia 3310. Now it is 6610'

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Ah Beng : I am a Proud, coz my son is in Medical College.
Friend: Really, what is he studying.
Ah Beng: No, he is not studying, they are Studying him.

=============================
Ah Beng : Doctor, in my dreams, I play football every night.
DR: Take this tablet, you will be ok.
Ah Beng : Can I take tomorrow, tonight is final game.

=============================
Ah Beng : If I die, will u remarry?
Wife: No! I'll stay with my sister. But if I die will u remarry?
Ah Beng : No, I'll also stay with your sister.

=============================
Ah Beng : People consider me as a 'GOD'
Wife: How do you know??
Ah Beng : When I went to the Park today, everybody said, Oh, GOD! You have come again.

=============================
Ah Beng complained to the police: "Sir, all items are missing,
except the TV in my house."
Police: "Why, the thief did not take TV?"
Ah Beng : 'I was watching TV news."

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Ah Beng comes back to his car & find a note saying "Parking Fine"
He Writes a note and sticks it to a pole, "Thanks for compliment."

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How do you recognize Ah Beng in School?
He is the one who erases the notes from the book when the teacher erases the board.

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Once Ah Beng was walking he had a glove on one hand and not on other.
So the man asked him why he did so. He replied that the weather forecast announced that on one hand it would be cold and on the other hand it would be hot.

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Ah Beng in a bar and his cellular phone rings. He picks it up and
Says 'Hello, how did you know I was here?'

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Ah Beng : Why are all these people running?
Man - This is a race, the winner will get the cup
Ah Beng - If only the winner will get the cup, why others running?

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Teacher: 'I killed a person' convert this sentence into future tense
Ah Beng : The future tense is 'you will go to jail'

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Ah Beng told his servant: 'Go and water the plants!'
Servant: 'It's already raining.'
Ah Beng : 'So what? Take an umbrella and go.'

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Net Share

It has been one of my habits that I will just right-click a folder and share it in the event that one of my colleagues need the documents inside that folder. Over the years (or months, to be more precise), I would end up sharing a number of folders from my PC.

It happened that I wanted to unshare those folders this morning for no apparent reason, I manually searched and unshared them in my windows XP PC. Guess What? The list of sharing folders kept getting fewer and fewer as I removed them from sharing one by one. But I end up with three folders still displaying in my list of share folders in the network but I could not remember the location of those folders so that I could de-share(not sure there exists such a word though) them. I made a search in my PC for a few minutes but no success. Fortunately one of my colleagues came to my rescue. :D

His way is easy.

Just click on Start Menu, and launch Run dialog.
Type cmd and OK.

In the command prompt windows, type net share

There it goes. you will see a list of the folders that you shared from your PC.

We may quickly go to root folder and unshare them now. :)

ACCA F4 Tips

I have taken the exam sitting for ACCA F4 and F5 on June 2008. F5 was a killer paper for me and I really did bad. As for F4, I did pretty well and have enough confidence that I will pass this paper. In this post, I would like to share some tips on how to prepare for ACCA F4 which I think should guarantee you the pass.

The exam format of the current F4 paper does not give you options, you have to answer all questions. If you are aiming for perfect marks, you have to cover all topics under the syllabus to be equipped with enough knowledge to answer all questions. If you cannot cover all topics, read on this post for some tips.

First of all, we will divide the whole syllabus into 5 main topics: Singapore Legal System, Contract Law, Company Law, Tort Law and Corporate Governance. Out of the above five topics, Contract Law and Company Law are considered two big topics and covers a number of areas. The coverage of the other three topics are relatively lighter. The questions will be based on all those areas and the main obstacle faced by the students in attempting this paper is the huge amount of memory work to be able to remember many facts from all those topics. Students are expected to remember case names from Contract Law and section numbers from Company Law in addition to the rules of the Laws. If a student does not study regularly from the beginning, it's nearly impossible to clearly remember all the topics in the exam hall.

Secondly, we will try to put our focus areas in preparing for the exam. Since the exam questions are to be based on all the above five topics, you can exclude one or some of them from your focus areas. Let's assume that you will exclude Company Law from your focus area, you can just read through the company law to roughly know about the rules of the Law. In my opinion, reading through the rules of the Law is easy since the Law is basically based on common sense. You are not supposed to remember sections names or subsection names from Company Law. Or you can exclude Contract Law from your focus area, ie., you are not supposed to remember all the English case names or local case names. But you are still required to know the rules of the contract law. Again, in my opinion, knowing just the rules of the law is easy to remember since they are all common sense. The need to remember those case names with some foreign names is a challenging part. In summary, I assume that you can either exclude Contract Law or Company Law from your focus areas.

Thirdly, since you have already excluded one of the big topics from your focus areas, you are supposed to cover up all details about the rest of the topics to guarantee you a pass. This includes remembering all the rules and sub-rules about the rest of the Laws. To be more precise, you are supposed to cover up the topics that you have chosen by thoroughly studying them from Exam Kit, Text Book and Lecture Notes.

In summary, by the time you go to exam hall, you know that in the worst case scenarios, you will be able to answer most of the exam questions but could probably miss a few. But missing a few questions while doing well for the rest of the questions could probably guarantee the pass for this paper.