To explain a calculation, say what the figure is, what it was taken from, what rule produced it and what it does to the accounts. Questions that ask you to “explain”, “state” or “comment” are looking for those links, not just the arithmetic.
This lesson belongs to accounting working and revision. The worked example uses depreciation and asset disposal, but the same pattern fits accruals, allowances and inventory.
What makes an explanation more than numbers read aloud?
A figure on its own can be copied from the working. An explanation shows that you understand the choice behind it.
For each figure, answer four short questions: What is it? What is it based on? Which rule or rate? What is the effect?
Keep each answer to a clause or a sentence.
How to write the explanation, step by step
- Name the figure in accounting terms, such as “depreciation charge” or “net book value”.
- State the base, the amount the rate or rule is applied to.
- State the rule, for example straight line or reducing balance, with the rate.
- Give the result with the number.
- State the effect, such as “reduces profit” or “reduces the carrying value of the asset”.
- Add the reason the method is used, if the question asks “why”.
Worked example
A delivery van costs RM20,000 and is depreciated at 25% a year on the reducing balance method. The question asks: “Explain how the depreciation charge for Year 2 was calculated.”
Year 1: 25% × 20,000 = RM5,000. Net book value at the end of Year 1 = 20,000 − 5,000 = RM15,000.
Year 2: 25% × 15,000 = RM3,750. Net book value at the end of Year 2 = 15,000 − 3,750 = RM11,250.
A strong written answer:
The Year 2 depreciation charge is RM3,750. It is 25% of the net book value at the start of Year 2, which is RM15,000 (cost RM20,000 less Year 1 depreciation of RM5,000). The reducing balance method applies the rate to what remains, so the charge falls each year. The charge is an expense, so it lowers profit and the van’s net book value.
Notice the four parts. It names the figure, the base, the rule and the effect, and it gives a reason for the falling charge.
The mistake to watch for
Weak answer: 25% of 20,000 is 5,000, and 25% of 15,000 is 3,750, so depreciation is 3,750.
This repeats the arithmetic but never says why the second calculation uses RM15,000 instead of RM20,000.
The correction is to add the sentence that gives the reason: “The rate is applied to the net book value, not the original cost.” If a marker has to guess your reason, you may not earn the mark.
Check yourself
1. Explain how RM1,200 depreciation was found for equipment costing RM9,000 with a residual value of RM1,800 and a life of 6 years.
Show answer
Depreciation is RM1,200 a year. It is the cost less the residual value, 9,000 − 1,800 = RM7,200, shared equally over 6 years: 7,200 ÷ 6 = 1,200. The straight line method gives the same charge every year, and it lowers profit by RM1,200 each year.
2. Insurance of RM2,400 was paid on 1 October for 12 months. Explain the prepayment at 31 December.
Show answer
Three months, October to December, have been used, which is 3/12 × 2,400 = RM600. The remaining 9 months, RM1,800, belong to next year, so RM1,800 is shown as a prepayment (a current asset). Profit is charged only RM600 this year.
3. Receivables are RM8,000 and the allowance is 5%. Explain the figure in one sentence.
Show answer
The allowance is RM400, which is 5% of the receivables balance of RM8,000, an estimate of the debts that may not be paid. The figure is set aside so that profit and receivables are not overstated.
Where this leads next
Next, prepare a ledger question for an Accounting tuition lesson so the explanations you write can be checked by a teacher. The double-entry and ledger trainer shows the entries behind a figure, and the percentage-base explorer shows what a rate is applied to at each stage.
Many students can calculate but find the wording of explanations harder. In online one-to-one Accounting tuition, a teacher can mark your sentences against the figures you have just produced.