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Accounting For Depreciation

The document provides examples of accounting for depreciation using various methods, including straight-line and reducing balance methods. It includes specific scenarios for calculating depreciation charges for different assets and their impact on financial statements. Additionally, it outlines the required entries for asset accounts, provision for depreciation, income statements, and statements of financial position.

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29 views2 pages

Accounting For Depreciation

The document provides examples of accounting for depreciation using various methods, including straight-line and reducing balance methods. It includes specific scenarios for calculating depreciation charges for different assets and their impact on financial statements. Additionally, it outlines the required entries for asset accounts, provision for depreciation, income statements, and statements of financial position.

Uploaded by

justinenamalawa48
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Accounting for depreciation

Example 1
A business purchases a car for cash $7 000 on 1 January 2018. The business’ financial year ends on
31 December. It is to be depreciated at the rate of five per cent per annum using the straightline
method.
Required:
Record the entries in:
i. Asset account
ii. Provision for depreciation account
iii. Income statement
iv. Statement of financial position

Try this!!
1. Halima’s financial year ends on 31 October. She depreciates her motor vehicles using the
reducing balance method at 20% per annum. On 1 November 20i6 she bought a motor vehicle
for $14 200.
What was the charge for depreciation for the year ended 31 October 2018?
A. $2 272
B. $2 840
C. $5 110
D. $5 680

2. Salim purchased machinery for $15 000 on 1 January 2021. He decided to depreciate it using
the straight line method at 10% per annum. On 31 December 2022 he incorrectly charged
depreciation using the reducing balance method at 10% per annum.
What was the effect on the profit for the year ended 31 December 20–2?
A. overstated by $150
B. overstated by $1 350
C. understated by $150
D. understated by $1 350

3. Zareb started a business on 1 April 20–4. He decided to use the revaluation method to
calculate the depreciation on his fixtures and fittings.
Fixtures and fittings, $9 800 were purchased on 1 April 20–4 which Zareb expected to have a
useful life of four years. Additional fixtures and fittings, $1 200, were purchased during the year.
On 31 March 20–5 Zareb valued his fixtures and fittings at $8 700.
What was the depreciation charge for the year ended 31 March 20–5?
A $1 100 B $2 300 C $2 450 D $2 750

4. Elsa’s financial year ends on 31 March. She depreciates her office equipment at 20% per
annum on cost. Depreciation is calculated from the date of purchase.
On 1 April the balances in Elsa’s books included the following:
$
Office equipment 2 500
Provision for depreciation of office equipment 750
She purchased additional office equipment by cheque on the following dates:
$
31 August 2014 1 200
1 December 2014 900
a. Write up the office equipment account and the provision for depreciation of office
equipment account for the year ended 31 March 2015. Balance the accounts and bring
down the balances on 1 April 2015.
b. Prepare a relevant extract from Elsa’s income statement for the year ended 31 March
2015.
c. Prepare a relevant extract from Elsa’s statement of financial position at 31 March 2015.

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