Help on Depreciation question

yellowbelly16

hey everyone
sorry to be a hassle, I am currently in 5th year and have my summer exams next week. For accounting I'm trying to study company accounts but cant seem to get the deperciation adjustment right. Could anyone help? Thanks

Trial Balance Info:
Delivery Vans (cost €280,000) 190,000
Purchases:1320,000
Adjustement:

Provide for depreciation on delivery vans at the annual rate of 12 ½ % of cost from the date of purchase to the date
of sale.
NOTE: On 31/3/06 a delivery van which had cost €24,000 on 30/6/00 was traded in against a new van which cost
€56,000. An allowance of €10,000 was given on the old van. The cheque for the net amount of this transaction
was incorrectly treated as a purchase of trading stock. This was the only entry made in the books in respect of this

transaction.

Thanks guys

gemxpink

I'm just working out the full solution and method for you, but in the meantime, the solution on examinations is here incase you've worked some out and want to check it.

EDIT:

Okay:

1. Open the "Van Account"

Balance (Cost) ...... 280,000 | Disposal (Cost of van) .24,000
Allowance (Given) . 10,000.. | Balance c/d ............. 312,000
Bank (Cost - Allow.) 46,000. |
—————————————————————————————————
........................... 312,000 |............................... 336,000
Balance b/d 312,000 (Bal sheet)

2. Calculate the depreciation of the van sold
Cost 24,000 on 30/6/00 => 31/3/06
5 years and 9 months = 69 months

24,000 * 12.5% = 3,000 / 12 = 250 per month.
250 * 69 (months) = 17,250 which is the total depreciation on this van

3. Open the "Provision for Depreciation Account"

Calculate the Depreciation for all vehicles for 07:
280,000 * 12.5% / 12 * 3 = 8,750
312,000 (i.e. 280 - 24 + 56) * 12.5% / 12 * 9 = 29,250
8,750 + 29,250 = 38,000

Disposal (total dep.) .......... 17,250.. | Balance (total dep. for all) 90,000
Balance c/d ...................... 110,750 | P+L Dep......................... 38,000
—————————————————————————————————————————
...................................................... Balance b/d .................. 110,750 (Bal sheet)

4. Open the "Disposal Account"

Calculate the profit or loss on disposal:

Cost of van - 24,000
Dep. on van - 17,250
————————————
NBV - 6,750
minus that from allowance - 10,000
——————————————————
Profit: 3,250

OR

Vans ............. 24,000 | Depreciation 17,250
Profit on Disp.. 3,250.. | Allowance ... 10,000
—————————————————————————
.....................27,250 | ................... 27,250

5. Correct Purchases
56,0000 - 10,0000 = 46,000

1,320,000
- 46,000

---

1,274,000 * (May have to have other things amended)

That's it Sorry it took so long!
If you have any questions just ask!

yellowbelly16

Thanks so much!!! your a lifesaver!! you explained it perfectly!!

**Timbuk2**

I don't do my workings in T-account form. It's fine to do so, but you can also do it in note form, which in my opinion, is easier and quicker. However gemxpink's solution is perfect as it is. This is how it looks when I do it. It's really the same method, just laid out in a different way in some cases.

Disposal of old van:
Cost..... 24,000
Acc Dep 17250 24,000 x 12.5% x (6 mths, 5 yrs, 3 mths) (which is 5.75 yrs)
NBV.......6750
Alwnce.10,000
Profit....3250 P/L gain

Correct Purchases
Cheque = New Van - Allowance
Cheque = 56,000 - 10,000 = 46,000

Purchases: TB 1,320,000 - 46,000 = 1,274,000 Tr a/c (although there are further adjustments later on)

Vans at Cost
TB 280,000 - 24,000 + 56,000 = 312,000 BS FA

Dep for yr
(280,000 - 24,000) x 12.5% x 12 mths = 32,000
24,000 x 12.5% x 3 mths.................. = 750
56,000 x 12.5% x 9 mths.................. = 5,250
Total............................................ = 38,000 P/L S/D exp

Acc Dep
TB 90,000 + 38,000 (this yr) - 17,250 (disposal) = 110,750 BS FA

I hope this helps. The figures in red are the ones to be entered into the accounts.