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QUESTION 2 DISPOSAL OF FIXED ASSETS (20) REQUIRED Answer the following questions from the information given...

QUESTION 2
DISPOSAL OF FIXED ASSETS
(20)
REQUIRED
Answer the following questions from the information given below. All workings must be shown.
2.1
Calculate the depreciation for the current financial year on the vehicle that was sold.
(2)
2.2
Prepare the Fixed Asset Realisation account in the general ledger to reflect the disposal of the vehicle on 31 August 2016.
(4)
2.3
Calculate the depreciation for the current financial year on the new vehicle acquired.
(2)
2.4
Calculate the total cost price of the vehicles on 28 February 2017.
(2)
2.5
Prepare the Accumulated Depreciation on Vehicles account in the general ledger to reflect all the entries up to the end of the financial year.
(5)
2.6
Prepare the following note to the financial statements (amount column for Vehicles only) as at 28 February 2017:
Property, plant and equipment
(5)
INFORMATION
Steers Enterprises owns a fleet of motor vehicles. The following balances appeared in the general ledger on 01 March 2016, the beginning of the financial year:
Vehicles at cost
Accumulated depreciation on vehicles
R1 000 000
R400 000
Additional information

On 31 August 2016, a vehicle that cost R200 000 was sold for R32 000 cash. The accumulated depreciation on this vehicle was R165 000 on 01 March 2016.

On 01 December 2016 a new vehicle was purchased for R250 000 cash.

Deprecation is provided for on vehicles at 20% per annum on the diminishing balance.

Solutions

Expert Solution

1.Depreciation for the current financial year on the vehicle that was sold
Cost 200000
Less:Acc. Depn. As on Mar.1,2016 165000
Carrying value as at Mar.1,2016 35000
Depreciation for the current financial year(for Mar.1-Aug.31,ie. 6mths.) on the vehicle sold
35000*20%/12*6= 3500
2.Fixed Asset Realisation account in the general ledger to reflect the disposal of the vehicle on 31 August 2016
Cost of the asset sold 200000 Accumulated depn. Upto the date of sale(165000+3500) 168500
Gain on sale 500 Cash realised 32000
200500 200500
3.Depreciation for the current financial year on the new vehicle acquired
Depn. For (Dec 1 ,2016 to Feb 28 ,2017) ie. 3 mths.
250000*20%/12*3=
12500
4.Total cost price of the vehicles on 28 February 2017
Mar.1,2016 Beginning balance 1000000
Aug.31,2016 Sale -200000
Dec1,2016 Purchase 250000
Cost price of vehicles as at Feb.28,2017 1050000
5..Accumulated Depreciation on Vehicles account
Debit Credit
Mar.1,2016 Beginning balance 400000
Aug.31,2016 Current yr. (Mar-Aug.) depn. On vehicle sold 3500
Depn. On vehicle sold written back 168500
Feb 28,2107 Depn. On new vehicle 12500
Balance c/d 247500
416000 416000
6..Notes to the financial statements
Property, plant and equipment(at cost) 1050000
Less: Accumulated depreciation 247500
Property, plant and equipment(net) 802500
Depreciation a/c
Debit Credit
Aug.31,2016 Current yr. (Mar-Aug.) depn. On vehicle sold 3500
Feb 28,2017 Depn. On new vehicle 12500
Balance c/d 16000
16000 16000

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