Question Tag: Accumulated Depreciation

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  • 10 Marks

FA – Mar 2024 – L1 – Q1b – Non-current assets and depreciation

Prepare journal entries for the depreciation, revaluation, and disposal of non-current assets.

The draft statement of financial position of Tinkong Ltd as at December 31, 2023, depicts the following:

Description GH¢
Plant and Machinery – Cost 4,954,824
Less: Accumulated Depreciation 1,917,016
Net Book Value 3,037,808

On reviewing the accounts of the business, its auditor found that the records have been correctly recorded except for the following events:

  • On January 17, 2023, a contract was signed for the purchase of a machine for GH¢450,000 which is to be delivered on July 17, 2024. The company made an advance payment of GH¢180,000 on signing of the contract and the balance was to be paid on delivery of the machine. The advance payment was debited to the plant and machinery account.
  • The cost of a new plant amounting to GH¢1,080,000 was acquired on January 21, 2023, and debited to the plant and machinery account. However, the cost of installation amounting to GH¢120,000 was debited to the repairs account.

Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.

Required:

Prepare the following accounts indicating the closing balances as at December 31, 2023: i) Plant and Machinery
ii) Accumulated Depreciation – Plant and Machinery

i) Plant and Machinery Account

ii) Accumulated Depreciation – Plant and Machinery Account

  • 10 Marks

FA – Nov 2023 – L1 – Q1b – Non-current assets and depreciation

Prepare the non-current assets and accumulated depreciation accounts for Pramso Ltd, including depreciation, revaluation, and disposal adjustments.

The following details were taken from the records of Pramso Ltd for the year ended 31 December 2022:

i) Tangible non-current assets (at cost) as at 1 January 2022 were:

Description Amount (GHȼ)
Land and buildings (Land GHȼ400,000) 700,000
Motor vehicles 450,000
Machinery 310,000

ii) Accumulated depreciation as at 1 January 2022:

Description Amount (GHȼ)
Land and buildings 85,000
Motor vehicles 210,000
Machinery 80,000

Pramso Ltd depreciates non-current assets as follows:

  • Buildings – 4% per annum on cost.
  • Motor Vehicles – 20% per annum using reducing balance method.
  • Machinery – 15% per annum on cost. Depreciation is charged for each month of ownership for all the assets.

iii) On 1 July 2022, land was revalued by an expert to GHȼ520,000.

iv) A Motor Vehicle purchased on 1 January 2020 for GHȼ22,000 was sold for GHȼ6,000 on 1 April 2022.

v) Machinery purchased on 1 July 2020 for GHȼ70,000 was sold on 1 January 2022 for GHȼ24,000.

vi) During the year the following assets were bought:

  • Machinery GHȼ24,000 on 1 July 2022.
  • Motor vehicles GHȼ40,000 on 1 October 2022.

Required:

Prepare the Non-Current Assets account and Accumulated Depreciation account showing the depreciation charge for the year. (10 marks)

Pramso Ltd – Schedule of Non-Current Assets for the year ended 31 December 2022

1. Depreciation of buildings charged to profit and loss account:
(700,000 – 400,000) x 4% = 12,000
2. Accumulated depreciation of motor vehicle disposed of:
22,000 x 20% + (22,000 – 4,400) x 20% + (22,000 – 4,400 – 3,520) x 20% x 3/12 = 4,400 +
3,520 + 704 = 8,624.
3. Accumulated depreciation of machinery disposed of:
70,000 x 15% x 6/12 + 70,000 x 15% = 5,250 + 10,500 = 15,750.
4. Depreciation of motor vehicle charged to profit and loss account:
(428,000 – (210,000 – 7,920)) x 20% + (22,000 – 7,920) x 20% x 3/12 + 40,000 x 20% x
3/12 = 45,184 + 704 + 2,000 = 47,888.
5. Depreciation of machinery charged to profit and loss account:
(310,000 – 70,000) x 15% + 24,000 x 15% x 6/12 = 36,000 + 1,800 = 37,800

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