Richy Limited has plant that cost R345 000 (including vat) on 01 January 2018. Installation and modification costs R69 000 (including vat). Transfer costs paid to lawyer amounted to R20 000. Transport costs for bringing the asset to location amounted to R20 000. The plant was ready for use on 01 January 2018. The machines were cleaned on 01 March 2018 at a cost of R10 000. Due to the low order levels in April 2018 the plant stood idle. Depreciation is provided over its useful life of 5 years using the straight line method to a nil residual value. Richy Limited measures plant under the revaluation model. The plant was revalued as follows: 31 December 2018 R310 000 31 December 2019 R300 000 31 December 2020 R250 000 Richy Limited transfers the maximum amount from the realised portion of the revaluation surplus to equity. VAT must be calculated at 15%. Required: Disclose the above information in the notes to the financial statements for years ending 2018, 2019 and 2020. (Include in you answer the journal entries that must be recorded in the general journal.
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.
Richy Limited has plant that cost R345 000 (including vat) on 01 January 2018. Installation
and modification costs R69 000 (including vat). Transfer costs paid to lawyer amounted to
R20 000. Transport costs for bringing the asset to location amounted to R20 000. The plant
was ready for use on 01 January 2018. The machines were cleaned on 01 March 2018 at a
cost of R10 000. Due to the low order levels in April 2018 the plant stood idle.
residual value.
Richy Limited measures plant under the revaluation model. The plant was revalued as
follows:
31 December 2018 R310 000
31 December 2019 R300 000
31 December 2020 R250 000
Richy Limited transfers the maximum amount from the realised portion of the
revaluation surplus to equity. VAT must be calculated at 15%.
Required:
Disclose the above information in the notes to the financial statements for years ending
2018, 2019 and 2020. (Include in you answer the
in the general journal.
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