Office furniture was bought on 1st April 2015 for Ksh. 800,000. It isassumed that the furniture depreciates at the rate of 15% p.a. Youare required to clearly show the DEPRECIATION AMOUNTS, NETBOOK VALUES and also the BALANCE SHEET Extracts for eachof the years 2015, 2016 and 2017 using EACH of the methodsbelow separately:-I) Straight – Line Method (4 marks)II) Reducing – Balance Method
Question
Office furniture was bought on 1st April 2015 for Ksh. 800,000. It isassumed that the furniture depreciates at the rate of 15% p.a. Youare required to clearly show the DEPRECIATION AMOUNTS, NETBOOK VALUES and also the BALANCE SHEET Extracts for eachof the years 2015, 2016 and 2017 using EACH of the methodsbelow separately:-I) Straight – Line Method (4 marks)II) Reducing – Balance Method
Solution
I) Straight-Line Method:
To calculate the depreciation amount using the straight-line method, we need to divide the initial cost of the office furniture by the useful life of the asset.
- Year 2015: Depreciation Amount = (Initial Cost * Depreciation Rate) = (800,000 * 15%) = 120,000
Net Book Value = Initial Cost - Depreciation Amount = 800,000 - 120,000 = 680,000
Balance Sheet Extract for 2015: Office Furniture: 680,000
- Year 2016: Depreciation Amount = (Initial Cost * Depreciation Rate) = (800,000 * 15%) = 120,000
Net Book Value = Previous Year's Net Book Value - Depreciation Amount = 680,000 - 120,000 = 560,000
Balance Sheet Extract for 2016: Office Furniture: 560,000
- Year 2017: Depreciation Amount = (Initial Cost * Depreciation Rate) = (800,000 * 15%) = 120,000
Net Book Value = Previous Year's Net Book Value - Depreciation Amount = 560,000 - 120,000 = 440,000
Balance Sheet Extract for 2017: Office Furniture: 440,000
II) Reducing-Balance Method:
To calculate the depreciation amount using the reducing-balance method, we need to multiply the net book value of the asset by the depreciation rate.
- Year 2015: Depreciation Amount = (Net Book Value * Depreciation Rate) = (800,000 * 15%) = 120,000
Net Book Value = Initial Cost - Depreciation Amount = 800,000 - 120,000 = 680,000
Balance Sheet Extract for 2015: Office Furniture: 680,000
- Year 2016: Depreciation Amount = (Net Book Value * Depreciation Rate) = (680,000 * 15%) = 102,000
Net Book Value = Previous Year's Net Book Value - Depreciation Amount = 680,000 - 102,000 = 578,000
Balance Sheet Extract for 2016: Office Furniture: 578,000
- Year 2017: Depreciation Amount = (Net Book Value * Depreciation Rate) = (578,000 * 15%) = 86,700
Net Book Value = Previous Year's Net Book Value - Depreciation Amount = 578,000 - 86,700 = 491,300
Balance Sheet Extract for 2017: Office Furniture: 491,300
Please note that the depreciation rate and useful life of the asset were not provided in the question, so I assumed a depreciation rate of 15% per annum.
Similar Questions
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