Exam Results

Yesterday I was filled with excitement and anxiety expecting ACCA exam results. I was anxious because I was convinced that I will fail F5 after coming out from exam hall with approximately 30 marks left answered. In the end, around 12:15pm Singapore time, the exam results were out and i was released to learn that I did not fail any papers. I was happy that I cleared both F4 and F5 in one time while, at the same time, I was equally sad that some friends did not get through certain papers. I sincerely sympatize with them as it's tough to muster up enough spirit to try another round again. It reminds me of a quote by Sir Winston Churchill.

"Success is not final, failure is not fatal."

For me, this quote is useful in a time when we are emotionally down.

Anyway whether we pass or we fail, we got to try to move on and get geared up ourselves for the next round. As Churchill continued to say, it's the courage to continue that counts.

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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.