On 1st April 2015, NASA bought three Buses KAA, KBB and KCC at a cost ofKshs. 3m, 4m and 5m respectively. On 30th June 2017, KBB was sold forKshs.2.9m. NASA prefers to depreciate the three Buses at the rate of 10% p.a.Using the reducing balance method.Required :-Show how the following accounts would appear for the years 2015-2017:i Buses accountii Provision for depreciation on Buses accountiii Buses Disposal accountiv Profit & loss account extractsv Balance sheet extracts
Question
On 1st April 2015, NASA bought three Buses KAA, KBB and KCC at a cost ofKshs. 3m, 4m and 5m respectively. On 30th June 2017, KBB was sold forKshs.2.9m. NASA prefers to depreciate the three Buses at the rate of 10% p.a.Using the reducing balance method.Required :-Show how the following accounts would appear for the years 2015-2017:i Buses accountii Provision for depreciation on Buses accountiii Buses Disposal accountiv Profit & loss account extractsv Balance sheet extracts
Solution
Sure, here's how the accounts would appear for the years 2015-2017:
i) Buses account:
- 2015: Purchase of KAA, KBB, KCC for Kshs. 3m, 4m, and 5m respectively. Total = Kshs. 12m.
- 2017: Sale of KBB for Kshs. 2.9m. Remaining value = Kshs. 9.1m.
ii) Provision for depreciation on Buses account:
- Depreciation is calculated at 10% p.a. on a reducing balance basis.
- 2015: Depreciation = 10% of 12m = Kshs. 1.2m.
- 2016: Depreciation = 10% of (12m - 1.2m) = Kshs. 1.08m.
- 2017: Depreciation = 10% of (10.8m - 1.08m) = Kshs. 0.972m.
iii) Buses Disposal account:
- 2017: KBB sold for Kshs. 2.9m. The net book value of KBB at the time of sale was (4m - 3 years of depreciation). The loss on sale (if any) would be recorded here.
iv) Profit & Loss account extracts:
- Each year, the depreciation expense would be recorded as an expense in the Profit & Loss account. Any loss on the sale of KBB would also be recorded as an expense here.
v) Balance sheet extracts:
- The Buses account (net of accumulated depreciation) would be shown under non-current assets in the balance sheet. The balance at the end of each year would be:
- 2015: (12m - 1.2m) = Kshs. 10.8m.
- 2016: (10.8m - 1.08m) = Kshs. 9.72m.
- 2017: (9.72m - 0.972m) = Kshs. 8.748m.
Please note that this is a simplified explanation and the actual accounting entries would also include details like date of transaction, particulars, and amount.
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