- 15 Marks
FA – L1 – Q23 – Non-current assets and depreciation
Question
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.
Answer
(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 |
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