CLASS FORM 4

SUBJECT ACCOUNTING STUDY PACK

TOPIC DEPRECIATION OF NON CURRENT ASSETS

INSTRUCTIONS
Read and write the notes in this study pack in your Accounting Notebook.
Answer the questions in your class exercise book.

DEPRECIATION PRACTICE QUESTION

Example 1
Sasha Limited had the following balances in its ledger accounts on 1 Jan 2010:
Motor Vehicles Account $640 000
Provision for Depreciation Account $ 85 000

On the same date, a new motor vehicle was bought for $50 000 cash. Another vehicle was bought paying
by cheque for $60 000 on 1 July 2010.
A vehicle which was bought on 1 January 2008 for $40 000 was sold for cash $35 000 on 31 December
2010.
It is the company’s policy to depreciate motor vehicles at 10% per annum on cost.
You are required to prepare:
(a) Motor Vehicles Account

(b) Provision for Depreciation Account (c) Motor Vehicles Disposal

Account

SOLUTIONS

Motor Vehicles Account

2010 Balance b/d $ 2010 Disposal Account $
Jan 1 Cash 640 000 Dec 31 40 000
Bank 50 000 Balance c/d
Jul 1 60 000 710 000
750 000 750 000
2011 Balance b/d 2011
Jan 1
710 000

Provision for Depreciation Account

2010 Disposal Account $ 2010 Balance b/d $
Dec31 12 000 Jan 1 Profit & Loss A/c 85 000
Balance c/d Dec31 72 000
145 000
157 000 157 000
2011 2011 Balance b/d
Jan 1 145 000

Motor Vehicles Disposal Account

2010 $ 2010 $

Dec31 Motor vehicle 40 000 7 Dec31 Depreciation 12 000

Profit on disposal 000 Cash 35 000
47 000 47 000

Depreciation in the disposal account was calculated as follows:

10% × $40 000 × 3 years = $12 000
The Profit & Loss depreciation was calculated as follows:
10% × $690 000 + 10% × $60 000 × 0.5 = $72 000

Exercise

Answer the questions below

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