Question

21.5A A printer costs £800. It will be kept for five years and then scrapped. Show your calculations of the amount of depreciation each year if (a) the reducing balance method at a rate of 60 per cent was used, (b) the straight line method was used. 21.11A C. Harvey, a sole trader, purchased a delivery van on 1 March 2020 for £11,360 and some new equipment on 1 September 2020 for £7,000. He expects that the van will have a useful life of four years, after which it should have a tradu in vole of £2,000. The scrap value of the equipment after ten years' use is estimated to be £1,000. Harvey charges depreciation using the straight-line method. Required: What should the depreciation expense be in relation to these two items for Harvey's financial year ended 30 November 2020 assuming that: (a) He charges a full year's depreciation in the year of purchase and none in the year of sale. (6) He charges depreciation on a monthly basis. 21.16A A company maintains its non-current assets at cost. An accumulated provision for deprecia- tion account is used for each type of asset. Machinery is to be depreciated at the rate of 15 per cent per annum, and fixtures at the rate of 5 per cent per annum, using the reducing balance method. Depreciation is to be calculated on assets in existence at the end of each year, giving a full year's depreciation even though the asset was bought part of the way through the year. The following transactions in assets have taken place: 2019 1 January Bought machinery £2,800, fixtures £290 1 July Bought fixtures £620 2020 1 October Bought machinery £3,500 1 December Bought fixtures £130 The financial year end of the business is 31 December You are to show: (a) The machinery account. (b) The fixtures account. (c) The two separate accumulated provision for depreciation accounts. (d) The non-current assets section of the balance sheet at the end of each year, for the years ended 31 December 2019 and 2020. 21.25A On 31 March 2019 Dixie's business traded-in a machine (a Z-15 model) which it had origi- nally purchased on 1 April 2016 for £19,000. Dixie had depreciated the Z-15 at 10 per cent per annum using the straight-line method. Dixie part-exchanged the Z-15 for a newer model (the Z-18). The vendor's list price for the Z-18 was £32,000 but Dixie only paid £20,000 plus the trade-in in full settlement. Required: What was the profit or loss on the disposal of the Z-15 in Dixie's Income Statement for the financial year to 31 March 2019?

Answer 1

Question 21.5A Part a: Straight line method: Under this metohd net book value of asset is depreciated equally over the estimated life of the asset. Depreciation for per year = [Net book value - residual value] / life of the asset = 800 - 0/5 years = £ 160 per year Therefore printer will be depreciated of 160 per year upto end of 5 years. Part b: Reducing balance method: Under this method more depreciation is charged at the beginning of an assset life and less is chaged towards the end. Reducing balance depreciation is also known as declining balance depreciation or diminishing balance depreciation Given rate of depreciation is 60% or 0.6 Year Net book Net book value Deprecia value at the at the begnning tion end of the of the year factor Depreciation year £ 800.00 0.6 £ 480.00 € 320.00 £ 320.00 0.6 £ 192.00€ 128.00 128.00 0.6 £ 76.80E 51.20 51.20 0.6 £ 30.72 € 20.48 20.48 0.6 £ 12.29 € 8.19

А в 790 Year Net book value at the begnning of the Depreciation year factor Depreciation 800 0.6 =+C792*0792 =+F792 =+C793*0793 =+F793 0.6 =+C794*D794 =+F794 =+C795*D795 =+F795 0.6 =+C796*D796 =+B792+1 791 792 793 794 795 796 207 0.6 Net book value at the end of the year =+C792-E792 =+C793-E793 =+C794-E794 =+C795-E795 =+C796-E796 =+B793+1 0.6 =+B794+1 =+B795+1