Theory question 106
Depreciation6. The Balance Sheet of Sosseh Limited as at 30th June, 1998 shows motor vehicles as follows:
Motor vehicles at cost N618,500
Less Depreciation N324,260
N294,240
Vehicles are depreciated on the straight line basis over a five year life. Depreciation is charged pro-rata to time in the year of acquisition but no charge is made in the year of disposal. The Disposal Account is written up to the last day of each year. During 1997 – 1998, the following vehicles were purchased:
30th September KMC 1041A N86,000
31st October BJL419A N107,000
28th February KMC 2121A N40,000
Sale of vehicles:
31st October GA4242 N3,000; original cost N28,000
31st December GA 3001 N5,400; original cost N24,000
31st March GA426 N4,200; original cost N19,000
The vehicles were originally purchased on 1st July, 1994; 30th November, 1995 and 1st April, 1996 respectively.
You are required to prepare: (a) Vehicles Account; (b) Vehicles Depreciation Account; and (c) Vehicles Disposal Account.
Show the model answer
Taking the balance sheet figures as the opening balances of the year of the purchases and sales (a year ending 30th June), with 20% a year on cost (five-year life):
(a) Vehicles account: balance b/f 618,500; bank 86,000 + 107,000 + 40,000 = 851,500. Disposal 28,000 + 24,000 + 19,000 = 71,000. Balance c/d 780,500.
Depreciation on vehicles sold (full years only up to the year before sale): GA4242 4 years × 5,600 = 22,400; GA3001 7 months 2,800 + 2 years 9,600 = 12,400; GA426 3 months 950 + 2 years 7,600 = 8,550; total 43,350.
Charge for the year: vehicles kept all year (618,500 − 71,000) × 20% = 109,500; KMC1041A 86,000 × 20% × 9/12 = 12,900; BJL419A 107,000 × 20% × 8/12 = 14,267; KMC2121A 40,000 × 20% × 4/12 = 2,667; total 139,334.
(b) Depreciation account: balance b/f 324,260 + profit and loss 139,334 − disposal 43,350 = balance c/d 420,244.
(c) Disposal account: Dr vehicles 71,000. Cr depreciation 43,350; bank 12,600 (3,000 + 5,400 + 4,200); loss on disposal to profit and loss 15,050 (2,600 + 6,200 + 6,250).
Work out the accumulated depreciation of each vehicle sold before writing up the disposal account; no charge is made in the year of sale.