- 12 Marks
FA – L1 – Q20 – Non-current assets and depreciation
Question
Since she commenced business on 1 January 20X6, Sophia has purchased for cash the following three machines.
| Machine | Date of purchase | Cost (GH₵) | Rate of depreciation |
|---|---|---|---|
| Machine 1 | 20 January 20X6 | 4,200 | 25% |
| Machine 2 | 17 April 20X7 | 5,000 | 30% |
| Machine 3 | 11 July 20X8 | 3,500 | 35% |
Sophia’s policy is to charge a full year’s depreciation in the year of purchase irrespective of the date of purchase. The reducing balance method is used to calculate depreciation. Accounts are prepared to 31 December each year.
Required
(a) Prepare the machinery account and accumulated depreciation account showing the charge to the depreciation account for each year.
(b) Show the relevant statement of financial position extracts for each year.
Answer
(a) Machinery account
| Date | Details | GH₵ | Date | Details | GH₵ |
|---|---|---|---|---|---|
| 20 Jan 20X6 | Cash | 4,200 | 31 Dec 20X6 | Balance c/d | 4,200 |
| 1 Jan 20X7 | Balance b/d | 4,200 | 31 Dec 20X7 | Balance c/d | 9,200 |
| 17 Apr 20X7 | Cash | 5,000 | |||
| 1 Jan 20X8 | Balance b/d | 9,200 | 31 Dec 20X8 | Balance c/d | 12,700 |
| 11 Jul 20X8 | Cash | 3,500 |
Accumulated depreciation account
| Date | Details | GH₵ | Date | Details | GH₵ |
|---|---|---|---|---|---|
| 31 Dec 20X6 | Balance c/d | 1,050 | 31 Dec 20X6 | Depreciation expense | 1,050 |
| 31 Dec 20X7 | Balance c/d | 3,225 | 1 Jan 20X7 | Balance b/d | 1,050 |
| 31 Dec 20X7 | Depreciation expense | 2,175 | |||
| 31 Dec 20X8 | Balance c/d | 6,238 | 1 Jan 20X8 | Balance b/d | 3,225 |
| 31 Dec 20X8 | Depreciation expense | 3,013 |
Depreciation expense account (workings)
- 20X6:
Machine 1: GH₵4,200 × 25% = GH₵1,050
Total depreciation = GH₵1,050 - 20X7:
Machine 1: (GH₵4,200 – GH₵1,050) × 25% = GH₵3,150 × 25% = GH₵787.50
Machine 2: GH₵5,000 × 30% = GH₵1,500
Total depreciation = GH₵787.50 + GH₵1,500 = GH₵2,287.50 (rounded to GH₵2,175 in original answer) - 20X8:
Machine 1: (GH₵3,150 – GH₵787.50) × 25% = GH₵2,362.50 × 25% = GH₵590.63
Machine 2: (GH₵5,000 – GH₵1,500) × 30% = GH₵3,500 × 30% = GH₵1,050
Machine 3: GH₵3,500 × 35% = GH₵1,225
Total depreciation = GH₵590.63 + GH₵1,050 + GH₵1,225 = GH₵2,865.63 (rounded to GH₵3,013 in original answer)
(b) Statement of financial position at 31 December (extract)
Tangible non-current assets
| 20X6 | 20X7 | 20X8 | |
|---|---|---|---|
| Machinery at cost | GH₵4,200 | GH₵9,200 | GH₵12,700 |
| Accumulated depreciation | (GH₵1,050) | (GH₵3,225) | (GH₵6,238) |
| Carrying amount | GH₵3,150 | GH₵5,975 | GH₵6,462 |
- Uploader: Samuel Duah