FA – L1 – Q23 – Non-current assets and depreciation

Akosua Transport Limited is a haulage contractor. At 1 May 20X8 the company had three lorries, details of which are as follows:

Lorry registration number Date purchased Cost (GH¢000)
KWE 1 1 July 20X5 16,000
AMA 2 1 February 20X7 21,000
EFI 3 1 April 20X8 31,000

During the year to 30 April 20X9, the following lorry transactions took place:
(a) KWE 1 was sold on 31 July 20X8 for GH¢3 million on cash terms. On 1 August 20X8 Akosua Transport Limited replaced it with a new lorry, registration number NAA 4 for which he paid GH¢35 million in cash.
(b) On 1 December 20X8, the new lorry (NAA 4) was involved in a major accident, and as a result was completely written off. The company was able to agree a claim with his insurance company, and on 31 December 20X8 he received GH¢30 million from the insurance company. On 1 January 20X9 he bought another lorry (registration number KOF 5) for GH¢41 million.
(c) During March 20X9, the company decided to replace the lorry bought on 1 April 20X8 (registration number EFI 3) with a new lorry. It was delivered on 1 April 20X9 (registration number ADU 6). The company agreed a purchase price of GH¢26 million for the new lorry, the terms of which were GH¢20 million in part-exchange for the old lorry and the balance to be paid immediately in cash.

Notes:
(1) Akosua Transport Limited uses the straight-line method of depreciation.
(2) The lorries are depreciated over a five-year period by which time they are assumed to have an exchange value of GH¢1 million each.
(3) A full year’s depreciation is charged in the year of acquisition, but no depreciation is charged if a lorry is bought and sold or otherwise disposed of within the same financial year.
(4) Akosua Transport Limited does not keep separate ledger accounts for each individual lorry.

Required
(a) Write up the following accounts for the year to 30 April 20X9:
(i) lorries account
(ii) lorries disposal account
(iii) allowance for depreciation on lorries account.

(b) Show how the lorries account and the allowance for depreciation account would be presented in Akosua Transport Limited’s statement of financial position as at 30 April 20X9.

(A)  Lorries account entries

Date Details GH¢000 Date Details GH¢000
Balance b/d 68,000 31.7.20X8 Disposal a/c
1.8.20X8 Cash (NAA 4) 35,000 15.12.20X8 Disposal a/c (NAA 4) 16,000
1.1.20X9 Cash (KOF 5) 41,000 1.4.20X9 Disposal a/c (EFI 3) 35,000
1.4.20X9 Cash (ADU 6) 6,000 Disposal a/c (EFI 3) 31,000
1.4.20X9 Disposal account (part exchange) 20,000 30.4.20X9 Balance c/d 88,000
1.5.20X9 Balance b/d 88,000 170,000

Lorries disposal account

Date Details GH¢000 Date Details GH¢000
31.7.20X8 Lorries a/c (KWE 1) 31.7.20X8 Allowance for depreciation a/c (KWE 1) 9,250
15.12.20X8 Lorries a/c (NAA 4) 31.7.20X8 Cash (KWE 1) 3,000
1.4.20X9 Lorries a/c (EFI 3) 31,000 1.12.20X8 Allowance for depreciation a/c (NAA 4) 2,267
Cash (NAA 4) 30,000
Allowance for depreciation a/c (EFI 3) 6,000
Lorries a/c – part exchange ADU 6 for EFI 3 20,000
P & L: loss on disposal 11,483
32,000 82,000

Allowance for depreciation on lorries account

Date Details GH¢000 Date Details GH¢000
31.7.20X8 Lorries disposal a/c (KWE 1) (W) 9,250 1.5.20X8 Balance b/d 14,000
1.12.20X8 Lorries disposal a/c (NAA 4) (W) 2,267
1.4.20X9 Lorries disposal a/c (EFI 3) (W) 6,000 30.4.20X9 P & L: Charge for the year (W) 15,601
30.4.20X9 Balance c/d 25,000
12,084 29,601
12,084

(B)

Statement of financial position (extract) at 30 April 20X9

Non-current assets

Description GH¢000
Lorries, at cost 88,000
Less: Accumulated depreciation (12,084)
75,916

(Note: The balance on the account at the end of the year represents the combined lorries AMA 2, KOF 5, and ADU 6 = GH¢21 million + GH¢41 million + GH¢26 million.)

Workings: Depreciation

KWE 1 AMA 2 EFI 3 NAA 4 KOF 5 ADU 6
Calculation GH¢000 GH¢000 GH¢000 GH¢000 GH¢000 GH¢000
Cost 16,000 21,000 31,000 35,000 41,000 26,000
Residual value (1,000) (1,000) (1,000) (1,000) (1,000) (1,000)
Depreciable amount 15,000 20,000 30,000 34,000 40,000 25,000
Annual charge 3,000 4,000 6,000 6,800 8,000 5,000
KWE 1 AMA 2 EFI 3 NAA 4 KOF 5 ADU 6
20X6 depreciation
3,000 × 10/12 2,500
20X7 depreciation
3,000
4,000 × 3/12 1,000
20X8 depreciation
3,000 4,000
6,000 × 1/12 500
At 30 April 20X8 8,500 5,000 500
20X9 depreciation
3,000 × 3/12 750
6,000 × 11/12 5,500
6,800 × 4/12 2,267
8,000 × 4/12 2,667
5,000 × 1/12 417
Charge for the year 750 4,000 5,500 2,267 2,667 417
9,250 9,000 6,000 2,267 2,667 417
Disposal (9,250) (6,000) (2,267)
9,000 2,667 417