Theory question 105
DepreciationBaako Ltd purchased motor vehicle as follows: (Date — Quantity — GH¢)
01/01/13 — 1 — 800,000
01/07/13 — 1 — 400,000
01/04/15 — 1 — 600,000
The company adopts a straight line method of depreciation at the rate of 10% per annum from the date of purchase. A separate account is prepared for provision for depreciation. On 30th June, 2014, the motor vehicle which was purchased on 1st July, 2013 was sold for GH¢240,000.
You are required to prepare: (a) Motor Vehicle Account for the year, 2013, 2014 and 2015. (b) Provision for Depreciation on Motor Vehicle Account for the year 2013, 2014, and 2015. (c) Motor Vehicle Disposal Account.
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Depreciation (10% of cost, time-apportioned): 2013 – 80,000 + 20,000 (6 months on 400,000) = 100,000; 2014 – 80,000 + 20,000 (6 months to sale) = 100,000; 2015 – 80,000 + 45,000 (9 months on 600,000) = 125,000.
(a) Motor Vehicle Account (GH¢): 2013 Dr bank 800,000; bank 400,000; c/d 1,200,000. 2014 b/d 1,200,000; Cr disposal 400,000; c/d 800,000. 2015 b/d 800,000; Dr bank 600,000; c/d 1,400,000.
(b) Provision for Depreciation Account: 2013 Cr P&L 100,000, c/d 100,000. 2014 b/d 100,000; Cr P&L 100,000; Dr disposal 40,000; c/d 160,000. 2015 b/d 160,000; Cr P&L 125,000; c/d 285,000.
(c) Motor Vehicle Disposal Account (30/6/2014): Dr motor vehicle 400,000 | Cr provision for depreciation (one year) 40,000; bank 240,000; profit and loss – loss on disposal 120,000.
Charge depreciation only for the months each vehicle is owned.