Question text At the beginning of the financial year on 1 April 2020, a company had a balance on plant account of Sh 372,000 and on provision for depreciation of plant account of Sh 205,400. The company’s policy is to provide depreciation using the reducing balance method applied to the non-current assets held at the end of the financial year at the rate of 20% per annum. On 1 September 2020 the company sold for Sh 13,700 some plant which it had acquired on 31 October 2016 at a cost of Sh 36,000. Additionally, installation costs totalled Sh 4,000. During 2018 major repairs costing Sh 6,300 had been carried out on this plant and, in order to increase the capacity of the plant, a new motor had been fitted in December 2018 at a cost of Sh 4,400. A further overhaul costing Sh 2,700 had been carried out during 2019. The company acquired new replacement plant on 30 November 2020 at a cost of Sh 96,000, inclusive of installation charges of Sh 7,000. Calculate: (a) the balance of plant at cost at 31 March 2021 was Sh (b) the total (accumulated) provision for depreciation of plant at 31 March 2021 was Sh . This comprised: - Depreciation for year to 31 March 2017 of Sh - Depreciation for year to 31 March 2018 of Sh - Depreciation for year to 31 March 2019 of Sh - Depreciation for year to 31 March 2020 of Sh (c) the loss (profit/loss) on disposal of the plant was Sh this is because the book value of the plant at the date of sale was Sh 16,630
Question
Question text At the beginning of the financial year on 1 April 2020, a company had a balance on plant account of Sh 372,000 and on provision for depreciation of plant account of Sh 205,400. The company’s policy is to provide depreciation using the reducing balance method applied to the non-current assets held at the end of the financial year at the rate of 20% per annum.
On 1 September 2020 the company sold for Sh 13,700 some plant which it had acquired on 31 October 2016 at a cost of Sh 36,000. Additionally, installation costs totalled Sh 4,000. During 2018 major repairs costing Sh 6,300 had been carried out on this plant and, in order to increase the capacity of the plant, a new motor had been fitted in December 2018 at a cost of Sh 4,400. A further overhaul costing Sh 2,700 had been carried out during 2019. The company acquired new replacement plant on 30 November 2020 at a cost of Sh 96,000, inclusive of installation charges of Sh 7,000.
Calculate:
(a) the balance of plant at cost at 31 March 2021 was Sh
(b) the total (accumulated) provision for depreciation of plant at 31 March 2021 was Sh
. This comprised:
-
Depreciation for year to 31 March 2017 of Sh
-
Depreciation for year to 31 March 2018 of Sh
-
Depreciation for year to 31 March 2019 of Sh
-
Depreciation for year to 31 March 2020 of Sh
(c) the loss (profit/loss) on disposal of the plant was Sh this is because the book value of the plant at the date of sale was Sh 16,630
Solution
To answer this question, we need to follow these steps:
Step 1: Calculate the cost of the plant sold The cost of the plant sold is the initial cost plus installation costs, major repairs, the cost of the new motor, and the cost of the overhaul. This gives us: 36,000 (initial cost) + 4,000 (installation) + 6,300 (repairs) + 4,400 (new motor) + 2,700 (overhaul) = Sh 53,400
Step 2: Calculate the balance of plant at cost at 31 March 2021 The balance of plant at cost at the beginning of the financial year was Sh 372,000. We subtract the cost of the plant sold and add the cost of the new plant acquired to get the balance at the end of the financial year: 372,000 (initial balance) - 53,400 (plant sold) + 96,000 (new plant) = Sh 414,600
Step 3: Calculate the total provision for depreciation of plant at 31 March 2021 The initial provision for depreciation was Sh 205,400. We need to add the depreciation for each year. The depreciation is calculated as 20% of the balance of the plant at the end of each year. For the year ending 31 March 2021, we need to calculate the depreciation for the new plant for 4 months (December to March), which gives us 20% * 96,000 * 4/12 = Sh 6,400. So the total provision for depreciation is: 205,400 (initial provision) + 6,400 (depreciation for new plant) = Sh 211,800
Step 4: Calculate the loss on disposal of the plant The book value of the plant at the date of sale is the cost of the plant minus the accumulated depreciation. The accumulated depreciation is calculated as 20% of the cost of the plant for each year. Since the plant was sold on 1 September 2020, we need to calculate the depreciation for 4 years (2016 to 2020). This gives us 20% * 53,400 * 4 = Sh 42,720. So the book value of the plant at the date of sale is 53,400 - 42,720 = Sh 10,680. The loss on disposal is the book value minus the sale price, which gives us 10,680 - 13,700 = -Sh 3,020. The negative sign indicates a profit, so the company made a profit of Sh 3,020 on the disposal of the plant.
Similar Questions
At the beginning of the financial year on 1 April 2020, a company had a balance on plant account of Sh 372,000 and on provision for depreciation of plant account of Sh 205,400. The company’s policy is to provide depreciation using the reducing balance method applied to the non-current assets held at the end of the financial year at the rate of 20% per annum. On 1 September 2020 the company sold for Sh 13,700 some plant which it had acquired on 31 October 2016 at a cost of Sh 36,000. Additionally, installation costs totalled Sh 4,000. During 2018 major repairs costing Sh 6,300 had been carried out on this plant and, in order to increase the capacity of the plant, a new motor had been fitted in December 2018 at a cost of Sh 4,400. A further overhaul costing Sh 2,700 had been carried out during 2019. The company acquired new replacement plant on 30 November 2020 at a cost of Sh 96,000, inclusive of installation charges of Sh 7,000. Calculate: (a) the balance of plant at cost at 31 March 2021 was Sh (b) the total (accumulated) provision for depreciation of plant at 31 March 2021 was Sh . This comprised: - Depreciation for year to 31 March 2017 of Sh - Depreciation for year to 31 March 2018 of Sh - Depreciation for year to 31 March 2019 of Sh - Depreciation for year to 31 March 2020 of Sh (c) the (profit/loss) on disposal of the plant was Sh . This is because the book value of the plant at the date of sale was Sh .
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