Question

Willies Traders had the following balances (amongst others) in their books on 1 May 20.7:

Vehicles

R820 000
Accumulated depreciation: vehicles

R130 000
During the year ended 30 April 20.8, the following transactions took place pertaining to vehicles:

On 30 Oct 20.7, a new vehicle was bought for R242 000 cash.
On 1 Jan 20.8, an old vehicle, which had been bought on 1 Oct 20.5 for R245 000, was sold on credit for R138 000.

Willies Traders depreciates all their vehicles at a rate of 25% per annum according to the reducing balance method. Ignore VAT.

Answer 1

Solution

Willies Traders

Computation of depreciation for the year ended April 30, 20.8:

Depreciation on the new vehicle purchased on 30 Oct 20.7:

Cost = R242,000

Double declining depreciation rate – 25%

Annual Depreciation amount = 242,000 x 25% = R60,500

Depreciation for the period Oct 30 – April 30 (6 months) = 60,500 x 6/12 = R30,250

Depreciation on vehicle sold in current year, on 1Jan 20.8 –

Cost = R245,000

Purchased on 1 Oct 20.5

Book value on date of sale, 1 Jan 20.8 –

Depreciation for year ended 30 April 20.6 = 245,000 x 25% x 6/12 = R30,625

Book value = 245,000 – 30,625 = R214,375

Depreciation for the year ended 30 April 20.7 = 214,375 x 25% = R53,594

Accumulated depreciation = 30625 + 53,594 = R84,219

Book value on 30 April 20.7 = 245,000 – 84,219 = R160,781

Depreciation for up to date of sale, May 1, 20.7 – Jan 1, 20.8 (8 months) = 160,781 x 25% x 8/12 = R26,797

Accumulated Depreciation, 1 Jan 20.8 = 84,219 + 26,797 = R111,016

Book value = 245,000 – 111,016 = R133,984

Sale proceeds = R138,000

Gain on sale = 138,000 – 133,984 = R4,016

Total depreciation for year ended 30 April 20.8 = R30,250 + R26,797 = R57,047

Accumulated Depreciation -

Beg. Balance R130,000

Add: Current year depreciation R57,047

Sub-total = R187,047

Less: accumulated depreciation on equipment sold R111,016

Ending balance R76,031

Vehicles –

Beg. Balance R820,000

Add: vehicle purchased R242,000

Sub-total = R1,062,000

Less: cost of old vehicle sold R245,000

Ending balance R 817,000