Term : I Grade : V

Subject: Account WS : 1

Name: …………………………………………….… Date: 09/11/2022

Topic = Depreciation

Q.1. Jas owns a printing business and has recently incurred various expenditures relating to her premises.

REQUIRED

(a) Complete the table by inserting a tick (3) to show how each item of expenditure should be classified. The first one has

been completed as an example.

Jas’s business is expanding

rapidly and she needs more

warehousing space. Jas can rent

an additional warehouse. The

rent for the first six months

would be $40000. Alternatively,

Jas can purchase a warehouse for

$900000. She can obtain a long-

term loan of $700000. REQUIRED

(b) Advise Jas whether she

should rent or purchase a

warehouse. Justify your

answer. .........................................................................................................................................................................................................................

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An extract from Jas’s statement of financial position at 31 December 2019 showed the following:

Cost Accumulated Net book

depreciation value

$ $ $

Fixtures 115000 77625 37375

During the year ended 31 December 2020 the following transactions took place. On 1 January 2020 fixtures, $30000, were purchased by cheque. On 30 June 2020

fixtures were sold for $6000, which was received by cheque. These fixtures had originally been purchased on 1 January 2018 for $20000. Jas depreciates fixtures

on a straight-line basis. She assumes fixtures will have a useful life of four years, at which time the residual value will be 10% of original cost. Depreciation is

charged for each part of the year for which the fixtures are owned. REQUIRED (c) Prepare the following accounts for the year ended 31 December 2020. Balance

each account and bring down the balance on 1 January 2021.

Jas Fixtures account

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 Provision for depreciation of fixtures account

(d) Prepare the fixtures disposal account for the year ended 31 December 2020.

Jas

Fixtures disposal account

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Workings :

Q.2. Simon has a business selling office stationery. On 1 January 2019 he owned two delivery vehicles which had been purchased on 1 January 2018.

Delivery vehicle A had cost $30000 and delivery vehicle B had cost $25000.

Simon uses the straight-line method for depreciating the delivery vehicles. A rate of 20% per annum on cost is used, with the rate being applied for each part of the

year for which the delivery vehicles are owned.

Due to a decline in business, delivery vehicle B was sold on 31 March 2020 and a cheque for $10350 was received. Delivery vehicle A was still in use at the end of

2020.

REQUIRED

(a) Complete the following accounts for each of the years ended 31 December 2019 and 2020. Balance the accounts at the end of each year where appropriate.

Simon

Delivery vehicles account

Provision for

depreciation

of delivery vehicles

account

Delivery vehicles

disposal account

Simon’s sister

Yasmin is also in

business and

depreciates her delivery

vehicles by the

reducing balance

method.

Simon is considering

whether to apply the

reducing balance

method of depreciation

to his delivery

vehicles.

REQUIRED (b) Advise

Simon whether he

should apply the

reducing balance

method of

depreciation. Justify your

answer. .........................................................................................................................................................................................................................

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Q.3. Sariah owns a business selling ladies’ clothing. She maintains a system of double entry bookkeeping.

The following occurred during September 2020.

1 Purchased a motor vehicle on credit from Sharpe Motors $6350.

2 Ruhee, a credit customer, was declared bankrupt owing Sariah $1200.

The debt is to be written off.

REQUIRED

(a) Prepare journal entries to record the above transactions. Narratives are not required.

Sariah

Journal

Sariah is

preparing her financial statements for the year ended 30 September 2020. She provides the following information for fixtures and fittings.

2019 $

October 1 Fixtures and fittings at cost 28600

Provision for depreciation of fixtures and fittings 6185

2020

January 31 Sold fixtures and received a cheque 1150 The

fixtures had been purchased on 1 February 2018 for $1500

March 31 Purchased new fixtures paying by cheque 3500

Sariah’s policy is to provide depreciation on fixtures and fittings at 10% per annum using the reducing balance method. A full year’s depreciation is charged in the

year of purchase but none in the year of disposal.

REQUIRED

(b) Prepare the following accounts for the year ended 30 September 2020. Close the accounts by balancing or by making an appropriate year end transfer.

Sariah

Fixtures and fittings account

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 Provision for depreciation of fixtures and fittings account

Disposal account

Sariah is considering forming a partnership with her friend Emy who runs a similar business.

REQUIRED

(c) Advise Sariah whether or not she should form a partnership with Emy. Justify your answer with two advantages and two disadvantages of forming a partnership

with

Emy. ............................................................................................................................................................................................................................

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Q.4. Amelia opened a business on 1 April 2017. On that date she made the following payments by bank transfer.

Premises 100000

Office furniture 3450

Carriage on office furniture 50

Stationery and small office equipment 30

Legal expenses on purchase of premises 1400

Computer equipment 1600

Installation of computer equipment 100

Ink cartridges and printer paper 40

REQUIRED

(a) Complete the table by placing a tick (√) in the correct column to indicate whether each payment is capital expenditure or revenue expenditure.

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Amelia decided to depreciate her non-current assets using the reducing (diminishing) balance method at the following rates.

Premises 2% per annum

Office furniture 20% per annum

Computer equipment 30% per annum

She decided that no depreciation would be charged in the year of disposal.

REQUIRED

(b) Name one other method of depreciation which Amelia could apply

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(c) Prepare the following accounts for each of the years ended 31 March 2018 and 31 March 2019.

Balance the provision for depreciation of computer equipment account and bring down the balance on 1 April 2018 and 1 April 2019.

Amelia

Computer equipment account

Provision for depreciation on computer equipment account

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On 30 September 2019 Amelia sold the office furniture as it was no longer suitable and received $1750 in cash.

REQUIRED

(d) Calculate the total depreciation on the office furniture up to the date of

disposal. .......................................................................................................................................................................................................................

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(e) Calculate the profit or loss on the disposal of the office

furniture. ......................................................................................................................................................................................................................

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Q.5. Masuma owns a furniture store. She maintains a full set of accounting records. Her financial year ends on 31 March.

Masuma provided the following information at 31 March 2018.

1 On 1 April 2017 Amina, a credit customer, owed $160. On 1 March 2018 she paid 75% of this and the balance was written off as a bad debt.

2 On 4 January 2018 additional fixtures and fittings, $2000, were purchased on credit from Office Traders, but this transaction was not recorded.

3 The fixtures and fittings are depreciated at the rate of 20% per annum on the cost of equipment held at the end of each financial year.

4 On 31 March 2018 the discount columns in the cash book showed the following totals for the month:

discount column on debit side $55

discount column on credit side $68

These totals had not been transferred to the discount accounts in the ledger.

REQUIRED

(a) Record this information in the following accounts in Masuma’s ledger at 31 March 2018.

Some entries have already been made in the accounts during the year.

Close all the accounts by balancing or by making a transfer to an appropriate account.

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 Masuma

Amina account

Bad debts

account

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REQUIRED

(b) Explain each entry in the disposal of motor vehicle account.

Name the account in which the double entry would be made for each item.

State whether that account would be debited or credited.

February 1 Motor vehicles

Explanation .................................................................................................................................... ..............................................................................

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Double entry..................................................................................................................

February 1 Provision for depreciation of motor vehicles

Explanation ...................................................................................................................................................................................................................

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Double entry .................................................................................................................

February 1 M6 Vans

Explanation ...................................................................................................................................................................................................................

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Double entry..................................................................................................................

March 31 Income statement

Explanation

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Double entry..................................................................................................................

Q.6. Jamil started a business on 1 January 2014. He considered using the straight line (equal instalment) method to depreciate all his non-current assets.

REQUIRED

(a) Name one other method Jamil could use to depreciate his non-current

assets. ..............................................................................................................................

(b) Suggest two reasons why the straight line (equal instalment) method would not be a suitable method of depreciation to apply to the hand tools used in Jamil’s

factory.

1...................................................................................................................................................................................................................................

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2...................................................................................................................................................................................................................................

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Jamil decided to depreciate his office machinery at 20% per annum using the straight line (equal instalment) method calculated on a month-by-month basis from

the date of purchase to the date of disposal.

He provided the following information.

2014 January 1 Purchased office machine A, $15000, paying by cheque.

2016 October 1 Purchased office machine B, $18000, paying by cheque.

2017 July 1 Purchased office machine C, $20000, on credit from XY Limited. XY

Limited agreed to accept office machine A in part exchange at a

valuation of $6000.

REQUIRED

(c) Calculate the depreciation on office machinery for the year ended 31 December 2016.

Show your calculations and insert your answers in the spaces provided.

Calculation of depreciation for the year ended 31 December 2016

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(d)

Calculate the depreciation on office machinery for the year ended 31 December 2017.

Show your calculations and insert your answers in the spaces provided.

Calculation of depreciation for the year ended 31 December 2017

(e) Prepare the following accounts in the ledger of Jamil for each of the two years ended 31 December 2016 and 31 December 2017.

Balance the accounts and bring down the balances on 1 January 2017 and 1 January 2018.

Jamil

Office machinery account

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(f) Calculate the profit or loss on the disposal of office machine

A. .................................................................................................................................................................................................................................

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