Mwakisha, a contractor, started business on 1 January 2018. Purchases and disposals of machines over the subsequent three years were as follows: Machine Date of Cost Date of Purchase Disposal Shs. MA 1 1 January 2018 5,000,000 MB 2 1 July 2019 2,500,000 1 June 2020 MC 3 1 October 2020 7,000,000 The machines are depreciated on straight line basis using a rate of 20 per cent per annum. Required: For the years 2018, 2019 and 2020, calculate the depreciation attributable to each year using prorata or time basis
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.
- Mwakisha, a contractor, started business on 1 January 2018. Purchases and disposals of machines over the subsequent three years were as follows:
Machine Date of Cost Date of
Purchase Disposal
Shs.
MA 1 1 January 2018 5,000,000
MB 2 1 July 2019 2,500,000 1 June 2020
MC 3 1 October 2020 7,000,000
The machines are
Required:
For the years 2018, 2019 and 2020, calculate the depreciation attributable to each year using prorata or time basis
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