- 10 Marks
FA – L1 – Q25 – Non-current assets and depreciation
Adjust plant and equipment and accumulated depreciation accounts for Akosua Pharmaceuticals Limited for errors in 20X9 financial statements.
Question
The draft statement of financial position of Akosua Pharmaceuticals Limited as on December 31, 20X9, depicts the following:
| Description | GH¢ |
|---|---|
| Plant and equipment – Cost | 12,387,060 |
| Less: Accumulated Depreciation | (4,792,540) |
| 7,594,520 |
On reviewing the accounts of the business, its auditor found that the records have been correctly maintained except for the following events:
(i) On January 17, 20X9, a contract was signed for the purchase of a packaging machine from Kofi Enterprises Limited for GH¢1,125,000 which is to be delivered on July 17, 20Y0. The company paid an advance of GH¢450,000 on the signing of the contract and the balance was to be paid on delivery of the machine. The advance was debited to the plant and equipment account.
(ii) Installation of a production machine was completed on January 21, 20X9. The cost of the machine of GH¢2,700,000 was debited to the plant and equipment account. The cost of installation amounting to GH¢300,000 had been debited to a repairs account.
Depreciation is charged on a reducing balance method at 10% per annum. Depreciation on new assets commences in the month in which the asset is acquired.
The depreciation expense for the year 20X9 have been correctly calculated and recorded except for the impact of errors discussed above.
Required
Determine the correct balances as at December 31, 20X9 by recording appropriate adjustments in the following accounts:
(a) Plant and equipment
(b) Accumulated depreciation – plant and equipment
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