- 20 Marks
Question
(a) Explain the following Terms:
i. Depreciation.
ii. Useful Life of a Fixed Assets. (4 marks)
(b) There are four (4) factors/causes that contribute to depreciation of a Fixed Asset. List these factors or causes. (2 marks)
(c) Atta Moses is a trader who prepares account to 31st December each year. The following transactions with regard to Assets have taken place:
i. 3rd January, 2010 purchased one Office Equipment (Laptop) for GH¢2,000.
ii. 5th July, 2011 purchased Plant and Machinery costing GH¢50,000.
iii. 1st December, 2011 purchased Plant and Machinery for GH¢20,000
iv. 15th December, 2012 bought Office Equipment (Printer) for GH¢1,000.
Mr. Atta maintains its Fixed Assets at cost and depreciates its Asset at a constant rate of 20% using the straight-line method of providing for depreciation for all Assets. Assets purchased attract full depreciation charge in the year of purchase, whilst any asset disposed of attracts no depreciation charge.
You are required to prepare the following:
i. Plant and machinery Account.
ii. Office Equipment Account.
iii. Provision for Depreciation Account. (6 marks)
(d) The following information was extracted from the records of Mama Constance, a Petty Trader as at 31st December, 2014. Balance as per Bank Statement as at 31st December, 2014 was GH¢10,000 credit. Cash Book balance was GH¢40,000 credit in the Bank Account column. The following had been reflected in the Bank Statement but not in the Cash Book:
i. Bank loan interest GH¢ 2,000
ii. Bank Charges GH¢ 6,000
iii. Dividends from Investment GH¢ 10,000
iv. Interest from Treasury Bill GH¢ 4,000
In addition, a cheque of GH¢ 20,000 issued to Madam Peace was dishonoured because of insufficient funds. A cheque of GH¢25,000 from Stephen has not been credited. A cheque of GH¢49,000 issued to Samuel remained unpresented.
You are required to prepare:
i. An adjusted Cash Book. (2 marks)
ii. Bank Reconciliation Statement as at 31st December, 2014. (6 marks)
Answer
(a)
i. Depreciation is the allocation of the Depreciable amount of an asset over its estimated useful life. This allocated amount is charged against the income statement/Profit and Loss Account.
ii. The useful Life of an Asset is either the period over which a depreciable asset is expected to be used. OR the number of production/similar units expected to be obtained from the Asset by the enterprise/company.
(b)
- Physical deterioration/Expected physical wear and tear.
- Obsolescence/Economic factors.
- Depletion (Natural resources such as mines)
- Legal limit/Time factor.
(c)
i. Office Equipment Account
| GHS | GHS |
|---|---|
| 03/01/10 Bank | 2,000.00 |
| 31/12/10 Balance c/d | 2,000.00 |
| 01/01/11 Balance b/d | 2,000.00 |
| 31/12/11 Balance c/d | 2,000.00 |
| 1/01/12 Balance b/d | 2,000.00 |
| 15/08/12 Bank | 1,000.00 |
| 31/12/12 Balance c/d | 3,000.00 |
| Total | 3,000.00 |
ii. Plant and Machinery Account
| GHS | GHS |
|---|---|
| 05/07/11 Bank | 50,000.00 |
| 01/12/11 Bank | 20,000.00 |
| 31/12/11 Balance c/d | 70,000.00 |
| 01/01/12 Balance b/d | 70,000.00 |
| 31/12/12 Balance c/d | 70,000.00 |
| Total | 70,000.00 |
iii. Depreciation Account
| GHS | GHS |
|---|---|
| 31/12/10 Bank | 400.00 |
| 31/12/10 P&L (Office Equipment) | 400.00 |
| 01/01/11 Balance b/d | 400.00 |
| 31/12/11 P&L (Office Equipment) | 400.00 |
| 31/12/11 P&L (Plant & Mach.) | 14,000.00 |
| 01/01/12 Balance b/d | 14,800.00 |
| 31/12/12 P&L (Office Equip.) | 600.00 |
| 31/12/12 P&L (Plant & Mach.) | 14,000.00 |
| Total | 29,400.00 |
(d)
i. Adjusted Cash Book
| GHS | GHS |
|---|---|
| Dividends | 10,000.00 |
| T-Bills Interest | 4,000.00 |
| Dishonoured Cheque (Peace) | 20,000.00 |
| Bank Charges | 6,000.00 |
| Balance b/d | 40,000.00 |
| Balance c/f | 14,000.00 |
| Total | 48,000.00 |
ii. Bank Reconciliation Statement as at 31st December, 2014
| Details | GHS |
|---|---|
| Balance as per Adjusted Cash Book | (14,000.00) |
| Add: Unpresented cheques | 49,000.00 |
| 35,000.00 | |
| Less: Uncredited cheques | 25,000.00 |
| Balance as per Bank Statement | 10,000.00 |
- Tags: Accounting Transactions, Bank Reconciliation, Depreciation, Fixed Assets
- Level: Level 1
- Topic: Bank reconciliations
- Series: NOV 2015
- Uploader: Theophilus