I have this question which is confusing me because of the question has been phrased.
Tom ltd was formed in january 20012 and the following purchases and sales of machinery were made during the first 3 years of operations. The yr end of Tom ltd is 31 dec every yr
1 jan 2012 car 1 purchases $80,000
1 Oct 2012 car 2 purchased $60,000
30 June 2014 car 2 sales , $51,000
1 JULY 2014 CAR PURCHASE $20,000
Each of the cars was estimated to last 10yrs and to have a residue value of 10% of its cost price. Depreciation was by equal installments and it is company policy to charge depreciation for every month as asset is owned.
Required: write up ledger accounts for 2012,2013,2014, B) Car Account C) Allowance for depreciation account D)Car disposal Account.
car a/c
This what I did... Dr Cr
80,000
----------- bal cd 80000
80000 80000
-------------
bal 80000
yr 2 60000
-----------
140000
then i did the disposal a/c 140000-51000 =89000, which i used as opening balance for 2014 but what happens to 2013 or am i doing the right thing especially that there more than 1 years in the question.
The depreciation expense was 7,200+1350 please help me understand sir moffat i was watching the lectures but i think am just confused.
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Depreciation
10y ago#1Before I answer, two things:
One is that in the real exam you cannot possible be asked to write up the t-accounts for this. Depreciation will be tested in the MCQ's and it will be testing your calculation of depreciation - not writing up the t-accounts.
Secondly, surely you have a printed answer in the same book in which you found the question? If not, then you really should be using a different book - you should get a Revision Kit from one of the ACCA approved publishers, because they are all exam-standard questions and they also have printed answers to all the questions!
You seem to have got your years confused.
In year 1 (to 31 Dec 2012), you should debit the car account with 80,000 and then in the same year debit with another 60,000. So at the end of year 1 the balance is 140,000.
In year 2 (to 31 Dec 2013) there are no purchases or sales, so the balance will not change.
In year 3 (to 31 Dec 2014) there is a sale and a purchases , so you credit with 51,000 and debit with 20,000, leaving a final balance of 109,000.
With regard to the depreciation, I am not going to do it for every year - just for the first year!
The depreciation for car 1 is (80,000 - 8,000) / 10 = 7,200 per year, and for car 2 it is (60,000 - 6,000) / 10 = 5,400 per year.
So the total depreciation in the first year = 7,200 + (3/12 x 5,400) = 8,550. So you are correct :-)
Thank you Mr Moffat. This has made my understanding easier.
10y ago#3You are welcome :-)
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