Theory question 105
DepreciationSection B (answer only three questions from this section)
5. A manufacturing company prepares its accounts to 31st December each year. The company provides for depreciation on its plants at the rate of 10% per annum using the straight line method. On 31st December 2001, the plant account consisted of three plants purchased as follows (date of purchase; cost): Plant X 1st July, 1999 N60,000; Plant Y 1st January, 2000 N80,000; Plant Z 1st October, 2001 N30,000. The plant bought in July, 1999 was sold on 30th September, 2001 for N55,000.
You are required prepare: (a) Plant Account; (b) Provision for Depreciation Account; (c) Plant Disposal Account.
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Depreciation 10% of cost a year, by months owned.
(a) Plant account: 1999 bank (X) 60,000, balance c/d 60,000. 2000 + Y 80,000 → 140,000. 2001 + Z 30,000; disposal (X) 60,000; balance c/d 110,000.
(b) Provision for depreciation: 1999 charge 3,000 (X, 6 months). 2000 charge 14,000 (X 6,000 + Y 8,000); balance 17,000. 2001 charge 13,250 (X 9 months 4,500 + Y 8,000 + Z 3 months 750); transfer to disposal 13,500 (3,000 + 6,000 + 4,500); balance c/d 16,750.
(c) Plant disposal account: Dr plant 60,000; profit on disposal to profit and loss 8,500. Cr provision for depreciation 13,500; bank 55,000.
Book value of X at sale = 60,000 − 13,500 = 46,500; sold for 55,000, so a profit of 8,500.