Sam’s Catering purchased a delivery vehicle of R150 000 on 1 June 2021 on credit. Sam was advised that the residual value of this truck is estimated at R30 000. The diminishing depreciation method was adopted by Sam in utilising assets over five years. On 1 September 2021 Sam replaced equipment. The new equipment amounts to R45 000. The replaced equipment was purchased on 1 January 2018 for R30 000 and sold for R5 000. Sam uses the straight-line depreciation method over a period of four years to report on her equipment. Required -Record the above transactions in Sam’s Catering’s records through general journals for the financial year ended 31 December 2021 -Disclose the property, plant and equipment note in the financial statements for the year ended 31 December 2021
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.
Sam’s Catering purchased a delivery vehicle of R150 000 on 1 June 2021 on credit. Sam was advised
that the residual value of this truck is estimated at R30 000. The diminishing
adopted by Sam in utilising assets over five years.
On 1 September 2021 Sam replaced equipment. The new equipment amounts to R45 000. The
replaced equipment was purchased on 1 January 2018 for R30 000 and sold for R5 000. Sam uses
the
Required
-Record the above transactions in Sam’s Catering’s records through general journals for the
financial year ended 31 December 2021
-Disclose the property, plant and equipment note in the financial statements for the year ended
31 December 2021
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