Question

Non-current assets
Cost
Accumulated depreciation
NBV
K
K
K
Equipment
60 000
24 000
36 000
Office Computers
8 000
5 600
2 400
Total
68 000
29 600
38 400
The following transactions took place during the year ended 31 December 2019:
1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.
2. On 1 June 2019, new equipment was purchased at a cost of K35 000.
3. On 20 June 2019, office computers were purchased for K600.
BBD has the following depreciation policy:
- Equipment is depreciated at the rate of 20% per annum using the straight-line method.
- Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
- A full year’s depreciation is charged on equipment and office computers in the year of purchase.
- No depreciation is charged on equipment in the year of sale.
Required:
(a) Explain the term depreciation. [2 Marks]
(b) State four causes of depreciation. [4 Marks]
(c) State the advantages of using the straight-line method of depreciation [4 Marks]
(d) Prepare the following ledger accounts for the year ended 31 December 2019:
(i) Provision for depreciation of equipment account [4 Marks]
3
(ii) Equipment disposal account [4 Marks]
(e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019. [6 Marks]
[Total: 25 Marks]
QUESTION TWO
(a)Non-current assets
Cost
Accumulated depreciation
NBV
K
K
K
Equipment
60 000
24 000
36 000
Office Computers
8 000
5 600
2 400
Total
68 000
29 600
38 400
The following transactions took place during the year ended 31 December 2019:
1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.
2. On 1 June 2019, new equipment was purchased at a cost of K35 000.
3. On 20 June 2019, office computers were purchased for K600.
BBD has the following depreciation policy:
- Equipment is depreciated at the rate of 20% per annum using the straight-line method.
- Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
- A full year’s depreciation is charged on equipment and office computers in the year of purchase.
- No depreciation is charged on equipment in the year of sale.
Required:
(a) Explain the term depreciation. [2 Marks]
(b) State four causes of depreciation. [4 Marks]
(c) State the advantages of using the straight-line method of depreciation [4 Marks]
(d) Prepare the following ledger accounts for the year ended 31 December 2019:
(i) Provision for depreciation of equipment account [4 Marks]
3
(ii) Equipment disposal account [4 Marks]
(e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019. [6 Marks]
[Total: 25 Marks]
QUESTION TWO
(a)Non-current assets
Cost
Accumulated depreciation
NBV
K
K
K
Equipment
60 000
24 000
36 000
Office Computers
8 000
5 600
2 400
Total
68 000
29 600
38 400
The following transactions took place during the year ended 31 December 2019:
1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.
2. On 1 June 2019, new equipment was purchased at a cost of K35 000.
3. On 20 June 2019, office computers were purchased for K600.
BBD has the following depreciation policy:
- Equipment is depreciated at the rate of 20% per annum using the straight-line method.
- Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
- A full year’s depreciation is charged on equipment and office computers in the year of purchase.
- No depreciation is charged on equipment in the year of sale.
Required:
(a) Explain the term depreciation. [2 Marks]
(b) State four causes of depreciation. [4 Marks]
(c) State the advantages of using the straight-line method of depreciation [4 Marks]
(d) Prepare the following ledger accounts for the year ended 31 December 2019:
(i) Provision for depreciation of equipment account [4 Marks]
3
(ii) Equipment disposal account [4 Marks]
(e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019. [6 Marks]
[Total: 25 Marks]
QUESTION TWO
(a)Non-current assets
Cost
Accumulated depreciation
NBV
K
K
K
Equipment
60 000
24 000
36 000
Office Computers
8 000
5 600
2 400
Total
68 000
29 600
38 400
The following transactions took place during the year ended 31 December 2019:
1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.
2. On 1 June 2019, new equipment was purchased at a cost of K35 000.
3. On 20 June 2019, office computers were purchased for K600.
BBD has the following depreciation policy:
- Equipment is depreciated at the rate of 20% per annum using the straight-line method.
- Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
- A full year’s depreciation is charged on equipment and office computers in the year of purchase.
- No depreciation is charged on equipment in the year of sale.
Required:
(a) Explain the term depreciation. [2 Marks]
(b) State four causes of depreciation. [4 Marks]
(c) State the advantages of using the straight-line method of depreciation [4 Marks]
(d) Prepare the following ledger accounts for the year ended 31 December 2019:
(i) Provision for depreciation of equipment account [4 Marks]
3
(ii) Equipment disposal account [4 Marks]
(e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019. [6 Marks]
[Total: 25 Marks]
QUESTION TWO
(a)Non-current assets
Cost
Accumulated depreciation
NBV
K
K
K
Equipment
60 000
24 000
36 000
Office Computers
8 000
5 600
2 400
Total
68 000
29 600
38 400
The following transactions took place during the year ended 31 December 2019:
1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.
2. On 1 June 2019, new equipment was purchased at a cost of K35 000.
3. On 20 June 2019, office computers were purchased for K600.
BBD has the following depreciation policy:
- Equipment is depreciated at the rate of 20% per annum using the straight-line method.
- Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
- A full year’s depreciation is charged on equipment and office computers in the year of purchase.
- No depreciation is charged on equipment in the year of sale.
Required:
(a) Explain the term depreciation. [2 Marks]
(b) State four causes of depreciation. [4 Marks]
(c) State the advantages of using the straight-line method of depreciation [4 Marks]
(d) Prepare the following ledger accounts for the year ended 31 December 2019:
(i) Provision for depreciation of equipment account [4 Marks]
3
(ii) Equipment disposal account [4 Marks]
(e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019. [6 Marks]
[Total: 25 Marks]

Answer 1

a)

Depreciation: Depreciation means the value of an asset decreases over time due to wear and tear or obsolescence.It is the method of allocating cost of tangible asset over its usefull life. It helps the organisation to know how much of assets value has been used. It helps organisations to earn revenue from an asset while expensing the cost of assets used.

b)

Causes of Depreciation

1. Wear and Tear

2. Exhaustion

3. Maintenance

4. Deplection

5. Disuse

c)

Advantages of using straight line method

1. It is simple method of depreciation to calculate

2.It will reduce the book value of an asset to zero.

3. The depreciation is charged to profit and loss account equally is every year, uniformity in expense is maintained.

4. The depreciation is calculated on the original cost over a life time.

d)

(i)

Accumulated Depreciation-Equipment
Date	Account	Amount	Date	Account	Amount
				Bal B/d	24,000.00
31-May-19	Depreciation on sold Asset	16,800.00	31-Dec-19	Depreciation On equipment	13,400.00
31-Dec-19	Bal C/d	20,600.00
	Total	37,400.00		Total	37,400.00

(ii)

Equipment Disposal Account
Date	Account	Amount	Date	Account	Amount
31-May-19	Equipment	28,000.00	31-May-19	Bank	10,000.00
			31-May-19	Accumulated depreciation	16,800.00
			31-May-19	Loss on Sale of Asset	1,200.00
31-Dec-19	Bal C/d	-
	Total	28,000.00		Total	28,000.00

e)

Net Book Value of Equipment as at 31st December 2019

	Cost	Accumulated Depreciation	Depreciation for the year	Net Book Value
Equipment	60,000	24,000		36,000
Sale	-28,000	-16,800		-11,200
Net Equipment	32,000	7,200	6,400	18,400
Purchase	35,000		7,000	35,000
Total	67,000	7,200	13,400	53,400

Net Book Value of Computer as at 31st December 2019

	Cost	Accumulated Depreciation	Depreciation for the year	Net Book Value
Computer	8,000	5,600	600	1,800
Purchase	600		150	450
Total	8,600	5,600	750	2,250