On 1 April 2017 Rosa purchased two motor vehicles costing $50 000 each.On 1 January 2019 she sold one of the motor vehicles for $35 500. The sale proceedswere received by cheque.Depreciation is charged at 20% per annum using the reducing balance method.A full year’s depreciation is charged in the year of purchase and none in the year ofdisposal.(d) Prepare the provision for depreciation – motor vehicles account for the yearended 31 March 2019. Balance the account on that date and bring the balancedown on 1 April 2019.
Question
On 1 April 2017 Rosa purchased two motor vehicles costing 35 500. The sale proceedswere received by cheque.Depreciation is charged at 20% per annum using the reducing balance method.A full year’s depreciation is charged in the year of purchase and none in the year ofdisposal.(d) Prepare the provision for depreciation – motor vehicles account for the yearended 31 March 2019. Balance the account on that date and bring the balancedown on 1 April 2019.
Solution
To prepare the provision for depreciation – motor vehicles account for the year ended 31 March 2019, we need to follow these steps:
Step 1: Calculate the initial depreciation for the first year (from 1 April 2017 to 31 March 2018). The cost of the two vehicles is 50,000 each). The depreciation rate is 20%. So, the depreciation for the first year is 20,000.
Step 2: Calculate the depreciation for the second year (from 1 April 2018 to 31 March 2019). The book value of the vehicles at the beginning of the second year is 100,000 - 80,000 * 20% = $16,000.
Step 3: On 1 January 2019, one of the vehicles was sold for 44,500 (35,500).
Step 4: The provision for depreciation – motor vehicles account for the year ended 31 March 2019 is the sum of the depreciation for the first and second years, which is 20,000 + $16,000).
Step 5: Balance the account on 31 March 2019. The balance is the book value of the vehicles at the end of the year, which is $44,500.
Step 6: Bring the balance down on 1 April 2019. The balance is the same as the balance on 31 March 2019, which is $44,500.
So, the provision for depreciation – motor vehicles account for the year ended 31 March 2019 looks like this:
- 1 April 2017: $100,000 (cost of vehicles)
- 31 March 2018: -$20,000 (depreciation)
- 31 March 2019: -$16,000 (depreciation)
- 1 January 2019: -$35,500 (sale of one vehicle)
- Balance on 31 March 2019: $44,500
- Balance on 1 April 2019: $44,500
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