Straight-line Method

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

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

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Office equipment, Plant and Machinery, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

Question

(1) A company purchased some heavy machinery. The invoice for the machinery showed the following items:

Description	GH¢000
Cost of machinery	46,000
Cost of delivery	900
Cost of 12-month warranty on the machinery	1,600
Total amount payable	48,500

In addition, the company incurred GH¢3.4 million in making modifications to its factory so that the heavy machinery could be installed.
What should be the cost of the machinery in the company’s machinery account in the ledger?

(2)

A business acquired new premises at a cost of GH¢400 million on 1 January 20X9. In the period to the year end of 31 March 20X9 the following further costs were incurred:

Description	GH¢000
Costs of initial adaptation of the building	12,000
Legal costs relating to the purchase	2,500
Monthly cleaning contract	3,400
Cost of air conditioning unit necessary for machinery to be used	2,800
Cost of machinery	12,300

What amount should appear as the cost of premises in the company’s statement of financial position at 31 March 20X9?

(3)

The plant and machinery account for a company for the year ended 30 June 20X9 is as follows:

20X8		GH¢	20X9		GH¢
1 July	Balance	960,000	31 March	Transfer to disposal account	80,000
31 Dec	Cash: purchase of machines	200,000	30 June	Balance	1,080,000
		1,160,000			1,160,000

The company’s policy is to charge depreciation on plant and machinery at 25% each year on the straight-line basis, with proportionate charges in the year of acquisition and the year of disposal. None of the assets held at 1 July 20X8 was more than three years old.
What is the charge for depreciation of plant and machinery for the year ended 30 June 20X9?

(4)

A motor car was purchased in May 20X6 for GH¢7.8 million. The accounting policy is depreciation at 20% straight line on the cost of the assets in use at the year end. The car was traded in for a replacement vehicle purchased in July 20X9 with the agreed part exchange value being GH¢2.4 million. The company’s year-end is 31 December.

What was the profit or loss on disposal?

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Disposal, Financial accounting, Motor car, Non-current Assets, Profit or Loss, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

Question

Ama leases out German sports cars on a short-term basis. She started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases took place:

Year	Purchase Details	Cost (GH¢000)
20X6	Acquired 20 Porsche 924 Turbos at a cost of GH¢18,600,000 each	372,000
20X7	Purchased 6 Porsches for a total cost of GH¢108,600,000	108,600
20X8	Purchased a further two cars costing GH¢19,800,000 each	39,600
20X9	Purchased 15 cars for GH¢21,000,000 each	315,000

Ama prepares accounts to 31 December each year.

Required
Prepare a vehicle account, an accumulated depreciation account, and a depreciation account for the years 20X6 to 20X9.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accumulated Depreciation, Asset management, Depreciation, Financial accounting, Ledger accounts, Non-current Assets, Straight-line Method, Vehicle account
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

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

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Financial Reporting, Non-current Assets, Statement of Financial Position, Straight-line Method, Transport Industry
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

Question

Patowato Motors Limited leases second-hand German sports cars for special occasions. It started business on 1 January 20X6 and has decided to depreciate the cars on a straight line basis at 25% per annum on cost at the year-end. During the years 20X6 to 20X9 the following purchases and sales of cars took place.

20X6 Acquired 20 Porsche 928 Turbos at a cost of GH₵18.6 million each
20X7 Purchased 6 Porsche vehicles for a total cost of GH₵108.6 million.
20X8 Traded-in two of the cars acquired in 20X6 and received an allowance of GH₵9 million each which was set against the purchase of a further two cars costing GH₵19.8 million each
20X9 Replaced 15 cars purchased in 20X6 with another 15, each of which cost GH₵21 million. A trade-in allowance totalling GH₵48 million was received

Patowato Motors Limited prepares accounts to 31 December each year.
The finance director of Patowato Motors Limited, who is a qualified accountant, intends to apply the revaluation model to those of the company’s sports cars that appreciate in value. He intends to recognise revaluation increases in profit or loss and has told colleagues that this will boost the directors’ bonuses.

Required
(a) Prepare a vehicle account, an accumulated depreciation account, a depreciation account and a disposals account for the years 20X6 to 20X9.
(b) Explain why the finance director’s suggestion to revalue some vehicles is unethical

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Disposals, IAS 16, Non-current Assets, Revaluation Ethics, Straight-line Method, Vehicle Accounts
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

Question

Martin bought a machine for GH₵10,000 on 1 January 20X8. He estimates a useful life of 8 years and a residual value of GH₵800. Depreciation is to be calculated on a straight-line basis.

Required:
(a) Write up for 20X8 and 20X9 the
(i) Machinery account (3 marks)
(ii) Accumulated depreciation account (3 marks)
(iii) Depreciation expense account (2 marks).
(b) Show how the machine would be presented in the statement of financial positions as at 31 December 20X8 and 31 December 20X9. (2 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Accumulated Depreciation, Depreciation, Financial Position, Machinery Account, Non-current Assets, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

Question

Avery purchased a van for GH₵800 cash. He estimates that in four years it will have a scrap value of GH₵104.

Required
(a) Calculate the annual depreciation charge on the straight-line method.
(b) Calculate the annual depreciation charge on the reducing instalment method (you will need to calculate the rate).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Depreciation, Non-current Assets, Reducing Balance Method, Straight-line Method, Van
Level: Level 1

Topic: Non-current assets and depreciation

FA – L1 – Q17 – Non-current assets and depreciation

Calculate depreciation for a non-current asset and a building using the straight-line method.

Question

(a) The financial year of a company is 1st January to 31st December. A non-current asset was purchased on 1st May for GH₵60,000. Its expected useful life is five years and its expected residual value is zero. It is depreciated by the straight-line method.

Required
Calculate the charge for depreciation in the year of acquisition if a proportion of a full year’s depreciation is charged, according to the period for which the asset has been held. (2 marks)

(b) An office property cost GH₵5 million, of which the land value is GH₵2 million and the cost of the building is GH₵3 million. The building has an estimated life of 50 years.

Required
Calculate the annual depreciation charge on the property, using the straight-line method.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Acquisition, Depreciation, Non-current Assets, Proportional Depreciation, Straight-line Method
Level: Level 1

Topic: Non-current assets and depreciation

Tag (SQ): Straight-line Method

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

FA – L1 – Q17 – Non-current assets and depreciation

Calculate depreciation for a non-current asset and a building using the straight-line method.

Our offerings

Community

Contact Info

Customer

Get In Touch

Tag (SQ): Straight-line Method

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

FA – L1 – Q27 – Non-current assets and depreciation

Explain the terms depreciation and useful life of a non-current asset for Kofi Ansah. List four factors/causes contributing to depreciation of a non-current asset.

You're reporting an error for "FA – L1 – Q27 – Non-current assets and depreciation"

FA – L1 – Q26 – Non-current assets and depreciation

Calculate the cost of machinery including delivery and modification costs, excluding warranty, for ledger entry.

You're reporting an error for "FA – L1 – Q26 – Non-current assets and depreciation"

FA – L1 – Q24 – Non-current assets and depreciation

Prepare vehicle, accumulated depreciation, and depreciation accounts for Ama's car leasing business for 20X6 to 20X9.

You're reporting an error for "FA – L1 – Q24 – Non-current assets and depreciation"

FA – L1 – Q23 – Non-current assets and depreciation

Prepare ledger accounts for lorries, disposals, and depreciation for Akosua Transport Limited for the year to 30 April 20X9.

You're reporting an error for "FA – L1 – Q23 – Non-current assets and depreciation"

FA – L1 – Q22 – Non-current assets and depreciation

Prepare Patowato Motors’ vehicle accounts for 20X6-20X9 and explain why revaluing some vehicles is unethical

You're reporting an error for "FA – L1 – Q22 – Non-current assets and depreciation"

FA – L1 – Q19 – Non-current assets and depreciation

Record Martin’s machine transactions for 20X8-20X9 and show financial position extracts.

You're reporting an error for "FA – L1 – Q19 – Non-current assets and depreciation"

FA – L1 – Q18 – Non-current assets and depreciation

Calculate annual depreciation for Avery’s van using straight-line and reducing balance methods.

You're reporting an error for "FA – L1 – Q18 – Non-current assets and depreciation"

FA – L1 – Q17 – Non-current assets and depreciation

Calculate depreciation for a non-current asset and a building using the straight-line method.

You're reporting an error for "FA – L1 – Q17 – Non-current assets and depreciation"

Our offerings

Community

Contact Info

Customer

Get In Touch

admin

Pick a Form