Question

QUESTIONS 3 - 5: Fixed assets, depreciation & disposal The following information relates to questions 3 - 5: The opening balances for SultanaRed Ltd on 1 January 2019 were £50,000 for vehicles at cost and £24,500 for the provision for vehicle depreciation. Vehicles are depreciated using a rate of 20% on cost, on a pro rata basis. On 31 March 2019, a vehicle which had originally cost £18,000 and which had a net book value at the end of 2018 of £8,400 was sold for £7,000 cash. 3 How much has the sold vehicle been depreciated in total by the end of 2018 ? (1 mark) 4 How much depreciation will be charged in 2019 for (i) the car that was sold on 31 March? (2 marks) (ii) the vehicles? remaining (2 marks) 5 As appropriate, enter the opening balances and transactions and balance off / transfer items to the P&L for the following accounts for the year ended 31/12/2019, including any balances for the next period: (0) Vehicle at for Provision account (iii) Disposal account cost account (10 marks) depreciation (12 marks) (11 marks)

Answer 1

Q 3. Depreciation till the end of 2018 = Original Cost of the Vehicle - Net Book Value

Depreciation till the end of 2018 = 18,000 - 8400 = 9,600

Q 4. i) Depreciation from January to March 2019 = Original cost of the vehicle * 20%*3/12

= 18,000 * 20%*3/12

= 900

ii)

Remaining Vehicle Cost = 50,000 - 18,000 = 32,000

Depreciation from Jan to December 2019 = 20%*32,000 = 6,400

Q 5

i) Vehicle at cost account = 50,000 - 18,000 = 32,000

ii) Provision for depreciation account = Opening Balance as on 1st Jan'2019 + Depreciation of the sold vehicle till March 2019 + Depreciation of the remainig vehicle for the entire year - Total depreciation charged till date for the sold vehicle

Provision for depreciation account = 24,500 + 900 + 6,400 - (900+9,600)

Provision for depreciation account = 21,300

iii) Loss on Sales of Asset = Sold Vehicle Original Cost - Provision for depreciation on the sold vehcile - cash received from the sales of vehicle

Loss on sales of asset = 18,000 - (900+9600) - 7,000

Loss on sales of asset = 500