5
2 The following balances were recorded in the books of Sofea on 1 March 2015.
$
Motor vehicles account (at cost) 50 000
Motor vehicles – provision for depreciation account 18 400
Additional information
1 On 31 May 2015 a motor vehicle costing $16 000 and with an accumulated depreciation of
$7000 was sold for $8400.
2 On 30 June 2015 a motor vehicle costing $20 000 was purchased on credit.
3 The depreciation policy of Sofea is as follows:
Motor vehicles are depreciated at the rate of 25% per annum using the diminishing
(reducing) balance method.
A full year’s depreciation is charged in the year of purchase.
No depreciation is charged in the year of sale.
REQUIRED
(a) State the meaning of the accounting term depreciation.
...................................................................................................................................................
...................................................................................................................................................
...................................................................................................................................................
...............................................................................................................................................[2]
(b) Identify by ticking the appropriate box (✓) whether each statement about depreciation is true
or false. The first one has been completed as an example.
Statement True False
There is only one method of charging depreciation. ✓
Depreciation is the cash set aside for non-current
asset replacement.
Depreciation is an application of the going concern
concept.
[2]
6
(c) Calculate the:
(i) profit or loss on the sale of the motor vehicle on 31 May 2015.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................[1]
(ii) motor vehicles depreciation charge for the year ended 29 February 2016.
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
...........................................................................................................................................
.......................................................................................................................................[2]
(d) Prepare the motor vehicles provision for depreciation account for the year ended
29 February 2016. Balance the account and bring down the balance on 1 March 2016.
Motor vehicles provision for depreciation account
Date Details $ Date Details $
[5]
