The following trial balance was extracted from the books of Big Bamboo Limited on December 31, 2020 Big Bamboo Ltd Trial Balance as at January 1, 2020 Motor vehicle at cost 10,600 Provision for depreciation on Motor Vehicle 2,120 Building at cost 90,000 Provision for depreciation on Buildings 1,800 Stock at January 1, 2020 53,000 Carriage inwards 500 Debtors 50,130 Returns Inwards 6,000 Returns Outwards 5,560 Bad debt provision 1,100 Cash 3,200 Creditors 30,350 Bank overdraft 15,500 Sales 600,000 Purchases 440,000 Wages 93,200 Insurance 54,100 Discount received 8,300 Drawings 14,000 Capital 150,000 814,730 814,730 Additional Information: Stock at December 31, 2020 $80,000 Payment of $10,100 for insurance relates to the first quarter of 2021. Wages owing $4,800 Provision for bad debt is to be increased to $1,500 Depreciation on fixed assets: - Motor vehicles 10% on cost - Buildings 15 % on the reducing balance method Required: Prepare for Big Bamboo Limited: (a) An income statement for the year ended December 31, 2020 (b) A statement of financial position as at December 31, 2020
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
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Big Bamboo Ltd |
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Trial Balance as at January 1, 2020 |
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Motor vehicle at cost |
10,600 |
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Provision for |
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2,120 |
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Building at cost |
90,000 |
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Provision for depreciation on Buildings |
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1,800 |
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Stock at January 1, 2020 |
53,000 |
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Carriage inwards |
500 |
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Debtors |
50,130 |
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Returns Inwards |
6,000 |
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Returns Outwards |
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5,560 |
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1,100 |
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Cash |
3,200 |
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Creditors |
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30,350 |
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Bank overdraft |
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15,500 |
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Sales |
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600,000 |
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Purchases |
440,000 |
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Wages |
93,200 |
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Insurance |
54,100 |
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Discount received |
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8,300 |
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Drawings |
14,000 |
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Capital |
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150,000 |
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814,730 |
814,730 |
Additional Information:
- Stock at December 31, 2020 $80,000
- Payment of $10,100 for insurance relates to the first quarter of 2021.
- Wages owing $4,800
- Provision for bad debt is to be increased to $1,500
- Depreciation on fixed assets:
- Motor vehicles 10% on cost
- Buildings 15 % on the
Required:
Prepare for Big Bamboo Limited:
(a) An income statement for the year ended December 31, 2020
(b) A
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