Question

On 31 December 2018 the following extract was taken from the balance sheet of BBD.

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:

1. Prepare the following ledger accounts for the year ended 31 December 2019:

1. Provision for depreciation of equipment account                               
2. Equipment disposal account                                                              

2. Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019.                                                                                            

Answer 1

Answer :

(a).

(i), Provision for depreciation of equipment account

Date	Particulars	Amount	Date	Particulars	Amount
2019			2019		-
May 31	Equipment disposal account	16800	Jan 01	Balance	24000
Dec 31	Balance	20600	Dec 31	Depreciation exp	13400
		37400			37400

Accumulated Depreciation on Equipment sold

Cost	28000
Date of purcahse	August 01.2016
Rate of depreciation	20%
Depreciation for 2016 (28000*20%)	5600
Depreciation for 2017	5600
Depreciation for 2018	5600
Total	16800

Depreciation for the year

Beginning balance	60000
Sold during the year	-28000
Purchased during the year	35000
Ending Balance	67000
Depreciation at 20%	13400

(ii).

Equipment Disposal Account

Date	Particulars	Amount	Date	Particualars	Amount
2019			2019		-
May 31	Equipment	28000	May 31	Provision for derpeciation of equipment	16800
			May 31	Bank	10000
			May 31	Loss on disposal	1200
		28000			28000

(b)

Equipment	-
Total Equipment at the end	67000
Accumulated depreciation balance	20600
Net book value as at 31 December 2019	46400

• Accumuated depreciation balance from provision for derpeciation of equipment account

Office computer	-
Net book value at the beginning	2400
Purcahsed during the year	600
	3000
Depreciation expense 25%	750
Net book value as at 31 December 2019	2250

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