Straight Line Depreciation

IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

Question

a. Briefly explain the following concepts used in Accounting:

i. Depreciation

ii. Depreciable amount

iii. Net book value

iv. Straight line depreciation

v. Reducing balance depreciation

(10 marks)

b. The Managing Director of Agana Limited located at the Manya Krobo Municipality is uncomfortable with the impasse between the Municipality and the Electricity Company of Ghana. As such she decided to install solar equipment for her company. She purchased the equipment on 4th July 2021 at a cost of GH¢ 520,000. The estimated useful life of the asset is 10 years with a residual value of GH¢ 35,000. The company’s policy is to provide for a full year’s depreciation regardless of the date of purchase. You are required to:

i. Compute the rate of depreciation for the solar equipment using the straight-line method (2 marks)

ii. Compute the depreciation for the year 2021 using the straight-line method (4 marks)

iii. Compute the Net present value of the asset as at 31st December 2021 (4 marks)

(Total: 20 marks)

Answer

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Tags: Depreciable Amount, Depreciation, Depreciation Rate, Net Book Value, Net Present Value, Reducing Balance Depreciation, Straight Line Depreciation
Level: Level 1

Topic: reducing balance methods (IAS 16)
Series: OCT 2022

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

Question

DG Ltd. had, among others, the following balances in its books at 1st January 2023.

	Debit (GHȼ)	Credit (GHȼ)
Machinery at Cost	750,000
Machinery Accumulated Depreciation		301,000
Motor Vehicles at Cost	1,000,500
Motor Vehicles Accumulated Depreciation		402,000

The following information relates to the Non-Current Assets for the financial year ended 31st December, 2023: a) On 1st July, 2023 DG Ltd. purchased machinery at a Cost Price of GHȼ 75,000, paying by cheque. b) On 1st December, 2023 DG Ltd purchased machinery at a Cost Price of GHȼ 27,600, on credit from BD Machinery Ltd. c) No disposal of machinery took place during the year ended 31st December, 2023. d) Machinery is depreciated at 20% per annum using the straight-line method, the rate being charged for each proportion of the year the machinery is owned. No allowance is made for any residual value. All machinery held as at 31st December, 2023 had been purchased within the previous four years. e) On 30th June, 2023 Motor Vehicles which originally cost GHȼ 40,000 and with a net book value of GHȼ 16,000 at the date of sale, were sold at a profit of GHȼ 600. The disposal receipt was paid into the bank account. f) No purchases of Motor Vehicles took place during the year ended 31st December, 2023. g) Motor Vehicles are depreciated at 25% per annum using the straight-line method, the rate being charged for each proportion of the year the Motor Vehicles are owned. No allowance is made for any residual value. All Motor Vehicles held as at 31st December, 2023 had been purchased within the previous three years.

You are required to: Prepare the following Ledger Accounts of DG Ltd for the year ended 31st December, 2023, where appropriate showing the balance carried down to the next Financial Year. Dates are not required.

a) Machinery (4 marks)

b) Accumulated Depreciation of Machinery (4 marks)

c) Motor Vehicles (4 marks)

d) Accumulated Depreciation of Motor Vehicles (4 marks) e) Disposal of Motor Vehicles (4 marks)

[Total: 20 marks]

Answer

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Tags: Accumulated Depreciation, Disposal, Ledger Accounts, machinery, Motor Vehicles, Straight Line Depreciation
Level: Level 1

Topic: and Underlying Accounting Concepts
Series: APR 2024

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

Pakex is a division of an automobile group that has five years remaining on a leased premises in which it sells self-assembled motorcycles. The management is proposing an investment of ₦48 million on immediate improvements to the interior of the premises in order to stimulate sales by creating a more effective selling environment. The following information is available:

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

(iv) The management staff turnover at Pakex division is high. The division’s investment decisions and management performance measurement are currently based on the figures for the first year of the proposal.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Required: a. Prepare a summary of the statement of the management’s investment proposal for years 1 to 5 showing Residual Income and Return on Capital Employed for each year using the straight-line depreciation method. (10 Marks)
b. Comment on the use of the figures from the Statement in (a) above as a decision-making and management performance measure. (4 Marks)
c. Calculate the Residual Income and Return on Capital Employed for year 1 using the alternative proposal. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

Question

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

	GHȼ
1 June 2020 to 31 May 2021	135,000
1 June 2021 to 31 May 2022	140,000

During this period the following non-current assets were purchased on the dates shown:

Bimbila Ltd has a policy to depreciate machinery at 25% per annum on cost (straight line method) and equipment at 20% per annum on cost (straight line method), rates being charged for each month of ownership. Bimbila Ltd is now considering using the reducing balance method, with the following rates applying to the balance at the end of each year:

Machinery: 20%
Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

Machinery (2 marks)
Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

Machinery (2 marks)
Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: JULY 2023

IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

Question

a. Briefly explain the following concepts used in Accounting:

i. Depreciation

ii. Depreciable amount

iii. Net book value

iv. Straight line depreciation

v. Reducing balance depreciation

(10 marks)

i. Compute the rate of depreciation for the solar equipment using the straight-line method (2 marks)

ii. Compute the depreciation for the year 2021 using the straight-line method (4 marks)

iii. Compute the Net present value of the asset as at 31st December 2021 (4 marks)

(Total: 20 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciable Amount, Depreciation, Depreciation Rate, Net Book Value, Net Present Value, Reducing Balance Depreciation, Straight Line Depreciation
Level: Level 1

Topic: reducing balance methods (IAS 16)
Series: OCT 2022

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

Question

DG Ltd. had, among others, the following balances in its books at 1st January 2023.

	Debit (GHȼ)	Credit (GHȼ)
Machinery at Cost	750,000
Machinery Accumulated Depreciation		301,000
Motor Vehicles at Cost	1,000,500
Motor Vehicles Accumulated Depreciation		402,000

a) Machinery (4 marks)

b) Accumulated Depreciation of Machinery (4 marks)

c) Motor Vehicles (4 marks)

d) Accumulated Depreciation of Motor Vehicles (4 marks) e) Disposal of Motor Vehicles (4 marks)

[Total: 20 marks]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accumulated Depreciation, Disposal, Ledger Accounts, machinery, Motor Vehicles, Straight Line Depreciation
Level: Level 1

Topic: and Underlying Accounting Concepts
Series: APR 2024

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

Question

(i) The expected increase in revenue following the improvements is ₦40 million per annum. The average contribution to sales ratio is expected to be 40%.

(ii) The cost of capital is 16% and the division has a target Return on Capital Employed of 20% based on the net book value of the investment at the beginning of the year.

(iii) At the end of the five-year period, the premises improvements will have a NIL residual value.

In addition to the above information, there is an alternative proposal that suggests a forecast of the increase in revenue per annum from the premises improvements as follows:

Year	1	2	3	4	5
Increase in Revenue	56	40	40	24	16

All other factors are expected to remain the same.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Investment Appraisal, Management Performance, Residual Income, ROCE, Straight Line Depreciation
Level: Level 2

Topic: Cost-Volume-Profit (CVP) Analysis
Series: MAY 2015

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

Question

a) Describe the FIVE (5) main elements of financial statements in accordance with the IASB’s Conceptual Framework. (10 marks)

b) Bimbila Ltd commenced business on 1 June 2020 and reported the following net profits during its first two years in business:

	GHȼ
1 June 2020 to 31 May 2021	135,000
1 June 2021 to 31 May 2022	140,000

During this period the following non-current assets were purchased on the dates shown:

Machinery: 20%
Equipment: 15%

A full year’s depreciation is charged irrespective of the date of purchase.

Required:

i) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the original method (straight line) and rates for:

Machinery (2 marks)
Equipment (1 mark)

ii) Calculate the total depreciation for the years ended 31 May 2021 and 31 May 2022 using the alternative method (reducing balance) and rates for:

Machinery (2 marks)
Equipment (1 mark)

iii) Prepare a statement to show the net profit which would have been reported for each of the years ended 31 May 2021 and 31 May 2022 if the reducing balance method had been used. (4 marks)

Answer

Find Related Questions by Tags, levels, etc.

Topic: Non-current assets and depreciation, The IASB’s Conceptual Framework
Series: JULY 2023

Question Tag: Straight Line Depreciation

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IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

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IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

You're reporting an error for "IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations"

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

You're reporting an error for "CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts"

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

You're reporting an error for "FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis"

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

You're reporting an error for "FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework"

IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations

Explain depreciation-related concepts and compute depreciation and net book value for solar equipment using straight-line method.

You're reporting an error for "IA – OCT 2022 – L1 – Q6 – Depreciation Concepts and Calculations"

CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts

Prepare ledger accounts for machinery, motor vehicles, their accumulated depreciation, and disposal account based on given transactions and depreciation policies.

You're reporting an error for "CIB GH – INTRODUCTION TO ACCOUNTING – APRIL 2024 – L1 – Q2 – Non-Current Assets Ledger Accounts"

FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis

Evaluate Pakex's investment proposal using Residual Income and ROCE, including alternative proposal analysis for decision-making.

You're reporting an error for "FM – May 2015 – L2 – SB – Q3 – Cost-Volume-Profit (CVP) Analysis"

FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework

Describe the elements of financial statements per the IASB framework and compute depreciation using different methods, adjusting net profit accordingly.

You're reporting an error for "FA – July 2023 – L1 – Q1 – Non-current assets and depreciation | The IASB’s Conceptual Framework"

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