QUESTION 3 Henry Wong, a trader, whose financial year ends on 31 December, purchased the following property, plant and equipment and paid by cheque: 1 January 2014 office furniture RM22,500 1 March 2015 motor vehicle RM32,000 Henry Wong's depreciation policy is as follows: Office furniture -10% per annum using the straight-line method. Motor vehicle - 25% per annum using the reducing (diminishing) balance method. A full year's depreciation is charged in each year regardless of the date of purchase or sale. On the 31 December 2016, Henry Wong sold the motor vehicle and received a cheque for RM16,000.
QUESTION 3 Henry Wong, a trader, whose financial year ends on 31 December, purchased the following property, plant and equipment and paid by cheque: 1 January 2014 office furniture RM22,500 1 March 2015 motor vehicle RM32,000 Henry Wong's depreciation policy is as follows: Office furniture -10% per annum using the straight-line method. Motor vehicle - 25% per annum using the reducing (diminishing) balance method. A full year's depreciation is charged in each year regardless of the date of purchase or sale. On the 31 December 2016, Henry Wong sold the motor vehicle and received a cheque for RM16,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:QUESTION 3
Henry Wong, a trader, whose financial year ends on 31 December, purchased the following property,
plant and equipment and paid by cheque:
1 January 2014 office furniture RM22,500
1 March 2015 motor vehicle RM32,000
Henry Wong's depreciation policy is as follows:
Office furniture -10% per annum using the straight-line method.
Motor vehicle - 25% per annum using the reducing (diminishing) balance method.
A full year's depreciation is charged in each year regardless of the date of purchase or sale. On the 31
December 2016, Henry Wong sold the motor vehicle and received a cheque for RM16,000.
Required
Prepare the following ledger accounts for the years ended 31 December 2014, 2015 and 2016:
a) Office furniture
b) Accumulated depreciation - office furniture
c) Motor vehicle
d) Accumulated for depreciation - motor vehicle
e) Disposal of motor vehicle
f) Explain any TWO (2) causes of depreciation.
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