Baako Ltd purchased motor vehicle as follows: Date Quantity N 01/01/13 1 800,000 01/07/13 1 400,000 01/04/15 1 600,000 The company adopts a straight-line me...
Question 1 Report
Baako Ltd purchased motor vehicle as follows:
| Date | Quantity | N |
| 01/01/13 | 1 | 800,000 |
| 01/07/13 | 1 | 400,000 |
| 01/04/15 | 1 | 600,000 |
The company adopts a straight-line method of depreciation at the rate of 10% per annum from the date of purchase. A separate account is prepared for provision for depreciation. On 30h June 2014, the motor vehicle which was purchased on 1st July 2013 was sold for N6 240,000
You are required to prepare:
(a) Motor Vehicle Account for the year, 2013, 2014, and 2015.
(b) Provision for Depreciation on Motor Vehicle Account for the years 2013, 2014, and 2015.
(c) Motor Vehicle Disposal Account.
Answer Details
Approach. Depreciation is straight-line at 10% per annum from the date of purchase, so part-year assets get a proportionate charge. A separate provision account accumulates depreciation, and on disposal the cost and its accumulated depreciation are transferred to a Disposal Account against the sale proceeds.
Depreciation workings (10% per annum)
- Vehicle 1 (N800,000, bought 01/01/13): 80,000 per full year.
- Vehicle 2 (N400,000, bought 01/07/13): 40,000 per year -> 2013 = 20,000 (6 mths); to sale on 30/06/14 = 20,000 (6 mths).
- Vehicle 3 (N600,000, bought 01/04/15): 2015 = 45,000 (9 mths).
(a) Motor Vehicle Account (at cost)
| Dr | N | Cr | N |
|---|---|---|---|
| 2013 Jan 1 Bank | 800,000 | ||
| 2013 Jul 1 Bank | 400,000 | 2013 Dec 31 Bal c/d | 1,200,000 |
| 1,200,000 | 1,200,000 | ||
| 2014 Jan 1 Bal b/d | 1,200,000 | 2014 Jun 30 Disposal | 400,000 |
| 2014 Dec 31 Bal c/d | 800,000 | ||
| 1,200,000 | 1,200,000 | ||
| 2015 Jan 1 Bal b/d | 800,000 | ||
| 2015 Apr 1 Bank | 600,000 | 2015 Dec 31 Bal c/d | 1,400,000 |
| 1,400,000 | 1,400,000 |
(b) Provision for Depreciation on Motor Vehicle Account
| Dr | N | Cr | N |
|---|---|---|---|
| 2013 Dec 31 Bal c/d | 100,000 | 2013 Dec 31 P&L (80,000 + 20,000) | 100,000 |
| 2014 Jun 30 Disposal | 40,000 | 2014 Jan 1 Bal b/d | 100,000 |
| 2014 Dec 31 Bal c/d | 160,000 | 2014 Dec 31 P&L (80,000 + 20,000) | 100,000 |
| 200,000 | 200,000 | ||
| 2015 Dec 31 Bal c/d | 285,000 | 2015 Jan 1 Bal b/d | 160,000 |
| 2015 Dec 31 P&L (80,000 + 45,000) | 125,000 | ||
| 285,000 | 285,000 |
(c) Motor Vehicle Disposal Account
| Dr | N | Cr | N |
|---|---|---|---|
| Motor Vehicle (cost) | 400,000 | Provision for depreciation | 40,000 |
| Bank (sale proceeds) | 240,000 | ||
| P&L (loss on disposal) | 120,000 | ||
| 400,000 | 400,000 |
Note. Net book value at sale = 400,000 - 40,000 = 360,000; sold for 240,000, giving a loss on disposal of N120,000. (The proceeds figure in the question, N6 240,000, is read as N240,000.)
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