Question

A business has a financial year end of 31 December. An equipment is bought for $40,000 on 1 January 2020. It is to be depreciated at the rate of 30% using the Reducing Balance Method.

You are required to show records for the first three (3) years for the following:

1. Equipment Account

(2 marks)

2. Accumulated Provision for Depreciation: Equipment

(9 marks)

3. Profit and Loss Account

(6 marks)

4. Extract from the Statement of Profit or Loss for the years ending 31 December..

(3 marks)

A business has a financial year end of 31 December. An equipment is bought for $40,000 on 1 January 2020. It is to be depreciated at the rate of 30% using the Reducing Balance Method.

You are required to show records for the first three (3) years for the following:

1. Equipment Account

(2 marks)

2. Accumulated Provision for Depreciation: Equipment

(9 marks)

3. Profit and Loss Account

(6 marks)

4. Extract from the Statement of Profit or Loss for the years ending 31 December..

(3 marks)

Answer 1

a) Equipment Account is prepared as follows:

Under Reducing Balance Method of depreciation, the depreciation is charged on the balancing figure of assets every year. So amount of depreciation is fluctuating every year.

Equipment Account

Date	Particular	$	Date	Particular	$
Jan.1,2020	Cash	40,000	Dec.31,2020	Depreciation (30%)	12,000
			Dec.31,2020	Balance c/d	28,000
	Total	40,000		Total	40,000
Jan.1,2021	Balance b/d	28,000	Dec.31,2021	Depreciation (30%)	8,400
			Dec.31,2021	Balance c/d	19,600
	Total	28,000		Total	28,000
Jan.1,2022	Balance b/d	19,600	Dec.31,2022	Depreciation (30%)	5,880
			Dec.31,2022	Balance c/d	13,720
	Total	19,600		Total	19,600

b) Accumulated Provision for Depreciation: Equipment is prepared as follows:

Accumulated Provision for Depreciation: Equipment

Date	Particular	$	Date	Particular	$
Dec.31,2020	Balance c/d	12,000	Dec.31,2020	Depreciation	12,000
.	Total	12,000		Total	12,000
			Jan.1,2021	Balance b/d	12,000
Dec.31,2021,	Balance c/d	20,400	Dec.31,2021	Depreciation	8,400
	Total	20,400		Total	20,400
Dec.31,2022	Balance c/d	26,280	Jan.1,2022	Balance b/d	20,400
			Dec.31,2022	Depreciation	5,880
	Total	26,280		Total	26,280

c) Profit and Loss account is prepared as follows:

Particular	$	Particular	$
Depreciation	12,000	Net Loss	12,000
Total	12,000	Total	12,000
Depreciation	8,400	Net Loss	8,400
Total	8,400	Total	8,400
Depreciation	5,880	Net Loss	5,880
Total	5,880	Total	5,880