Theory question 105
DepreciationAlagba acquired the following motor vehicles in the respective dates.
Date — Description — Amount (GH¢)
1/1/2019 — LMN 232 AA — 1,200,000
30/6/2019 — ABC 151 BB — 620,000
1/3/2020 — BDK 202 LM — 1,350,000
The depreciation rate is 20% on straight line method. You are required to prepare the following account up to 31st December, 2022:
(a) Motor Vehicle Account;
(b) Provision for Depreciation Account;
(c) Profit and Loss Account (Extract);
(d) Balance Sheet (Extract).
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Depreciation 20% of cost a year, by months owned in the year of purchase:
LMN 240,000 a year; ABC 124,000 a year (2019: 6 months = 62,000); BDK 270,000 a year (2020: 10 months = 225,000).
Annual charges: 2019 302,000; 2020 589,000; 2021 634,000; 2022 634,000.
(a) Motor Vehicle Account (GH¢): 1/1/2019 Bank 1,200,000; 30/6/2019 Bank 620,000; 31/12/2019 bal c/d 1,820,000. 2020 bal b/d 1,820,000; 1/3/2020 Bank 1,350,000; bal c/d 3,170,000 (same balance carried down 2021 and 2022: GH¢3,170,000).
(b) Provision for Depreciation Account (credits from P&L): 2019 302,000 (bal 302,000); 2020 589,000 (bal 891,000); 2021 634,000 (bal 1,525,000); 2022 634,000 (bal c/d 2,159,000).
(c) Profit and Loss Account (extract): depreciation of motor vehicles 2019 GH¢302,000; 2020 GH¢589,000; 2021 GH¢634,000; 2022 GH¢634,000.
(d) Balance Sheet (extract) at 31/12 — cost, accumulated depreciation, net book value: 2019 1,820,000 − 302,000 = 1,518,000; 2020 3,170,000 − 891,000 = 2,279,000; 2021 3,170,000 − 1,525,000 = 1,645,000; 2022 3,170,000 − 2,159,000 = 1,011,000.
Time-apportion depreciation in the year each vehicle is bought, then accumulate.