Answer 24.4x A and B Double entry records for depreciation and the disposal of assets24.4X (a) What is meant by depreciation, and why is it important that a business person should providefor depreciation in his accounts?(b) On I January 2006 A. Simpson, a building contractor, purchased three dumpers for S48,000each. Mr Simpson estimated that his dumpers would have an effective working life of five yearswith a disposal value of $3,000 each. The straight line method of depreciation is to be used. Thefinancial year ends on 31 December. One of the dumpers kept breaking down and was sold on1 January 2008 for $25,000.You are required to show the relevant entries for the years 2006, 2007 and 2008 in the followingledger accounts:() dumper(ii) dumper disposal(iii) provision for depreciation - dumpers.All workings are to be shown.24.5X On 1 January 2007, which was the first day of a financial year, T. Young bought computerequipment for $9,500. It is to be depreciated by the straight line method at the rate of 20%,ignoring salvage value. On 1 January 2010 the equipment was sold for S4,250.Show the following for the complete period of ownership.(a) The computer equipment account.(b) The provision for depreciation - computer equipment account.(c) The computer equipment disposal account.(d) The extracts from profit and loss accounts for three years.(e) The extracts from three years' balance sheets - 2007, 2008 and 2009.24.6 A business buys a fixed asset for $10,000. The business estimates that the asset will be used for fiveyears, and will then have no scrap valve. After exactly two and a half years, however, the asset issuddenly sold for $5,000. The business always provides a full year's depreciation in the year ofpurchase and no depreciation in the year of disposal.Required:(a) Write up the relevant accounts (including disposal account but not profit and loss account) forcach of years 1, 2 and 3:i) using the straight line depreciation method (assume 20 % p.a.)(ii) using the reducing balance depreciation method (assume 40% p.a.).(b)(i) What is the purpose of depreciation? In what circumstances would each of the two methodsyou have used be preferable?(ii) What is the meaning of the net figure for the fixed asset in the balance sheet at the end ofyear 2?24.7X Show the relevant disposal account for each of the following cases, including the transfers to theprofit and loss account.(a) Motor vehicle: cost $12,000; depreciated $9,700 to date of sale; sold for $1,850.(b) Machinery: cost $27,900; depreciated $19,400 to date of sale; sold for $11,270.(c) Fixtures: cost $8,420; depreciated $7,135 to date of sale; sold for $50.(d) Buildings: cost $200,000; depreciated straight line 5% on cost for 11 years to date of sale; soldfor $149,000.

There are various types of expenses a business reports on its income statement. Some of them are…

24.4X (a) What is meant by depreciation, and why is it important that a business person should provide for depreciation in his accounts? (b) On 1 January 2006 A. Simpson, a building contractor, purchased three dumpers for S48,000 each. Mr Simpson estimated that his dumpers would have an effective working life of five years with a disposal value of $3,000 each. The straight line method of depreciation is to be used. The financial year ends on 31 December. One of the dumpers kept breaking down and was sold on 1 January 2008 for $25,000. You are required to show the relevant entries for the years 2006, 2007 and 2008 in the following ledger accounts: (i) dumper (ii) dumper disposal (iii) provision for depreciation - dumpers. All workings are to be shown.

24.4X (a) What is meant by depreciation, and why is it important that a business person should provide for depreciation in his accounts? (b) On 1 January 2006 A. Simpson, a building contractor, purchased three dumpers for S48,000 each. Mr Simpson estimated that his dumpers would have an effective working life of five years with a disposal value of $3,000 each. The straight line method of depreciation is to be used. The financial year ends on 31 December. One of the dumpers kept breaking down and was sold on 1 January 2008 for $25,000. You are required to show the relevant entries for the years 2006, 2007 and 2008 in the following ledger accounts: (i) dumper (ii) dumper disposal (iii) provision for depreciation - dumpers. All workings are to be shown.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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