- 12 Marks
FA – L1 – Q27 – Non-current assets and depreciation
Question
(A) Explain the following Terms:
(i) Depreciation.
(ii) Useful life of a non-current asset.
(B) There are four (4) factors/causes that contribute to depreciation of a Non-current asset. List these factors or causes.
(C).
Kofi Ansah is a trader who prepares accounts to 31st December each year. The following transactions with regard to assets have taken place:
(i) 3rd January, 20X7 purchased one office equipment (laptop) for GH¢2,000.
(ii) 5th July, 20X8 purchased plant and machinery costing GH¢50,000.
(iii) 1st December, 20X8 purchased plant and machinery for GH¢20,000.
(iv) 15th December, 20X9 bought office equipment (printer) for GH¢1,000.
Mr. Kofi maintains its non-current assets at cost and depreciates its assets at a constant rate of 20% using the straight-line method of providing for depreciation for all assets. Assets purchased attract full depreciation charge in the year of purchase, whilst any asset disposed of attracts no depreciation charge.
Required:
Prepare the following:
(i) Plant and machinery account.
(ii) Office equipment account.
(iii) Accumulated depreciation account.
Answer
(A). (i) Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life. This allocated amount is charged against the statement of profit or loss.
(ii) The useful life of a non-current asset is either the period over which a depreciable asset is expected to be used or the number of production/similar units expected to be obtained from the asset by the enterprise/company.
(B)
- Physical deterioration/Expected physical wear and tear.
- Obsolescence/Economic factors.
- Depletion (Natural resources such as mines).
- Legal limit/Time factor.
(C).
(i) Office equipment account
| Date | Details | GH¢ | Date | Details | GH¢ |
|---|---|---|---|---|---|
| 03/01/X7 | Bank | 2,000.00 | 31/12/X7 | Balance c/d | 2,000.00 |
| 01/01/X8 | Balance b/d | 2,000.00 | 31/12/X8 | Balance c/d | 2,000.00 |
| 01/01/X9 | Balance b/d | 2,000.00 | 31/12/X9 | Balance c/d | 3,000.00 |
| 15/08/X9 | Bank | 1,000.00 |
(ii) Plant and machinery account
| Date | Details | GH¢ | Date | Details | GH¢ |
|---|---|---|---|---|---|
| 05/07/X8 | Bank | 50,000.00 | 31/12/X8 | Balance c/d | 70,000.00 |
| 01/12/X8 | Bank | 20,000.00 | |||
| 70,000.00 | 70,000.00 | ||||
| 01/01/X9 | Balance b/d | 70,000.00 | 31/12/X9 | Balance c/d | 70,000.00 |
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