60,000 Accumulated depreciation on motor vehicle (1 October 2019) 15,000 Purchases and sales 1,204,000 1,574,050 Inventory (1 October 2019)
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
The following
| $ | $ | |
|---|---|---|
| Land and buildings | 151,000 | |
| Motor vehicles at cost | 60,000 | |
| 15,000 | ||
| Purchases and sales | 1,204,000 | 1,574,050 |
| Inventory (1 October 2019) | 91,000 | |
| Revenue reserves | 66,700 | |
| General expenses | 2,325 | |
| Salaries and wages | 244,150 | |
| Electricity | 5,600 | |
| Bank balance | 42,200 | |
| Interim dividend paid | 7,000 | |
| Motor vehicles expenses | 4,475 | |
| Insurance | 7,150 | |
| Discounts allowed and discounts received | 10,900 | 8,300 |
| 3,050 | ||
| 136,500 | 100,700 | |
| Debenture interest paid | 2,400 | |
| Ordinary shares ($ 40 par value) | 160,000 | |
| Share premium | 36,000 | |
| 8% debentures | 60,000 | |
| Cash in hand | 9,000 | |
| Directors’ fees | 40,000 | |
| 2,020,750 | 2,020,750 |
Additional information:
- 1Goods costing $710 purchased on credit on 29 September 2020, were in transit and therefore had not been entered in the books by close of business on 30 September 2020.
- Inventory as at September 2020 was valued at $112, 300
- A debtor who owed the company $1,500 was declared bankrupt. His debt has not yet been written off.
- Allowance for doubtful debts is to be set at 2% of the outstanding receivables.
- Depreciation is to be provided on motor vehicles at a rate of 20% per annum on cost.
- As at 30 September 2020, outstanding motor vehicles expenses amounted to $125 while pre-paid insurance amounted to $150.
- Invoices issued amounted to $950 had completely been omitted from the records as at 30 September 2020.
- Provision is to be made for outstanding debenture interest and corporation tax of $22,975.
- The directors have proposed a final dividend of $2.50 per share.
Required:
- Income statement for the year ended 30 September 2020.
Statement of financial position as at 30 September 2020.
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