CIMA CO2 Official Learning System - Fundamentals of Financial Accounting
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ACCOUNTING FOR NON-CURRENT ASSETS
SOLUTIONS TO REVISION QUESTIONS C2
180
Solution 2
●
This is a straight test of double-entry bookkeeping principles for non-current assets.
●
It requires a calculation of the accumulated depreciation of the disposed asset up to the
date of disposal in accordance with the method and policy stated in the question, and
then to calculate the depreciation charge for each of the 2 years.
●
The purchases and sales of vehicles do not involve purchases and sales accounts.
●
The sale proceeds are part of the calculation of the profi t or loss on disposal – do not use
this fi gure in transferring the asset at cost out of its ledger account.
Motor vehicles at cost
$ $
1.10.X5 Balance b/d 10,000 24.04.X6 Disposal 4,000
31.01.X6 Bank
9,000 30.09.X6 Balance c/d 15,000
19,000 19,000
1.10.X6 Balance b/d 15,000 31.08.X7 Disposal 9,000
20.02.X7 Bank 12,000
31.08.X7 Bank 6,600
Disposal 7,400 30.09.X7 Balance c/d 32,000
41,000 41,000
1.10.X7 Balance b/d 32,000
Motor vehicles – accumulated depreciation
$ $
24.04.X6 Disposal [W1] 2,313 1.10.X5 Balance b/d 4,000
30.09.X6 Balance c/d 5,015 30.09.X6 Income statement [W2] 3,328
7,328 7,328
31.08.X7 Disposal [ W3] 2,250 1.10.X6 Balance b/d 5,015
30.09.X7 Balance c/d 10,074 30.09.X7 Income statement [W4] 7,309
12,324 12,324
1.10.X7 Balance b/d 10,074
Workings
$
Wl Year ended 30 September 20X3 ($4,000 @ 25%) 1,000
Year ended 30 September 20X4 ($3,000 @ 25%) 750
Year ended 30 September 20X5 ($2,250 @ 25%) 563
2,313
W2 ($15,000–($4,000–2,313)) @ 25% 3,328
W3 Year ended 30 September 20X6 ($9,000 @ 25%) 2,250
W4 ($32,000–($5015–2,250)) @ 25% 7,309
ACCOUNTING FOR NON-CURRENT ASSETS
181
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Motor vehicles – disposal
$ $
24.04.X6 Motor vehicles cost 4,000 24.04.X6 Motor vehicles – acc. dep’n Bank 2,313
500
30.09.X6 Income statement 1,187
4,000 4,000
31.08.X7 Motor vehicle cost 9,000 1.08.X7 Motor vehicle – acc. dep’n 2,250
30.09.X7 Income statement 650 Motor vehicle cost 7,400
9,650 9,650
Solution 3
●
Identify the revenue items – for example tax and insurance – and exclude from the non-
current asset accounts.
●
A full year’s depreciation is to be charged on all assets in possession at the end of the
year.
(a)
Motor vehicles at cost
$ $
1 Jan. Balance b/d 15,000 31 Jul. Disposal 9,000
1 Aug. Bank
9,500 31 Dec. Balance c/d 15,500
24,500 24,500
1 Jan. Balance b/d 15,500
Motor vehicles expenses
$ $
1 Aug. Bank 500 31 Dec. Income statement 156
Balance c/f 344
500 500
Plant and equipment at cost
$ $
1 Jan. Balance b/d 24,000 1 Apr. Disposal 5,600
1 Feb. Bank 7,500
14 Mar. Bank 11,500
1 Oct. Bank 5,000 31 Dec. Balance c/d 42,000
48,000 48,000
1 Jan. Balance b/d 42,400
Repairs and maintenance
$ $
1 Oct. Bank 10,000 31 Dec. Income statement 10,000
Motor vehicles – accumulated depreciation
$ $
31 Jul. Disposal 5,203 1 Jan. Balance b/d 9,000
31 Dec. Balance c/d 6,723 31 Dec. Income statement 2,926
11,926 11,926
1 Jan. Balance b/d 6,723
ACCOUNTING FOR NON-CURRENT ASSETS
SOLUTIONS TO REVISION QUESTIONS C2
182
Plant and equipment – accumulated depreciation
$ $
1 Apr. Disposal 4,480 1 Jan. Balance b/d 10,500
31 Dec. Balance c/d 14,500 31 Dec. Income statement 8,480
18,980 18,980
1 Jan. Balance b/d 14,500
Plant and equipment – disposal
$ $
1 Apr. Plant and
equipment at
cost
5,600 1 Apr. Plant and
equipment
accumulated
depreciation
4,480
31 Dec. Income
statement
880 1 Apr. Bank 2,000
6,480 6,480
Motor vehicles – disposal
$ $
31 Jul. Motor
vehicles at
cost
9,000 31 Jul. Motor vehicles
accumulated
depreciation
5,203
31 Jul. Bank 3,400
31 Dec. Income statement 397
9,000 9,000
(b) Income statement extract – year ended December 20X5
$
Depreciation charge for the year 11,406
Net profi t on disposal of assets (483)
Equipment repairs 10,000
Annual vehicle licence tax 100
Vehicle warranty (5 / 36×$400) 56
Solution 4
●
Set aside a separate page for workings, and label them clearly.
●
Remember to deduct the discount on the motor vehicle before calculating the amount of
sales tax to be added; remember also that the annual vehicle licence tax and insurance are
revenue expenses, and should not be included with the cost of the vehicle. The resulting
total needs to be added to the non-current asset register, not to the ledger accounts.
●
Deduct the cost and depreciation of the disposed plant from the ledger.
●
Calculate the value of offi ce equipment purchased by comparing the ledger total with
the non-current asset register total.
●
In Part (b), note that the motor vehicle is depreciated on an actual time basis.
ACCOUNTING FOR NON-CURRENT ASSETS
183
FUNDAMENTALS OF FINANCIAL ACCOUNTING
(a)
Motor vehicles
$
List price 24,000
Less : 20% (4,800)
19,200
Add : sales tax 17.5% 3,360
22,560
Add : Cost of painting name 100
Amount to add to non-current asset register 22,660
Plant and machinery Cost ($) Acc. dep’n ($)
Balance as per nominal ledger 120,000 30,000
Less : Disposal (30,000) (5,700)* (*i.e. ($30,000–$24,300))
90,000 24,300
Offi ce equipment
Revised nominal ledger balances Cost ($) Acc. dep’n ($) Carrying amount ($)
Motor vehicles 48,000 (12,000) 36,000
Plant and machinery 90,000 (24,300) 65,700
Offi ce equipment 27,500 (7,500) 20,000
165,500 (43,800) 121,700
Revised non-current asset register ($147,500 $22,660) 170,160
Therefore purchase of offi ce equipment was 48,460
(b) Depreciation for 20X4
Motor vehicles
25% $48,000 12,000
25% $22,660 3/12 1,416 (rounded)
13,416
Plant and machinery
10% $90,000 9,000
Offi ce equipment
10% $68,460 6,846
Solution 5
●
Remember to deduct the sales tax that is included in the price of machine F, as well as
the cost of the maintenance agreement (which is a revenue expense).
ACCOUNTING FOR NON-CURRENT ASSETS
SOLUTIONS TO REVISION QUESTIONS C2
184
(a) Ledger Accounts
Land at cost
$
1/4/X7 Balance b/fwd 120,000
Buildings at cost
$
1/4/X7 Balance b/fwd 80,000
Plant at cost
$ $
1/4/X7 Balance b/fwd 144,000 Disposal a/c 26,000
Bank a/c 17,000 31/3/X8 Balance c/fwd 169,000
Bank a/c 34,000
195,000 195,000
Offi ce equipment at cost
$ $
1/4/X7 Balance b/fwd 21,600 31/3/X8 Adjustment 400
Bank 2,000 Balance c/fwd 23,200
23,600 23,600
Small tools at cost
$
1/4/X7 Balance b/fwd 1,200
Buildings – accumulated depreciation
$ $
1/4/X7 Balance c/fwd 18,000
31/3/X8 Balance c/fwd 20,000 31/3/X8 Income statement 2,000
20,000 20,000
Plant – accumulated depreciation
$ $
31/3/X8 Disposal a/c 11,700 1/4/X7 Balance b/fwd 76,200
Balance c/fwd 77,175 Income statement 12,675
88,875 88,875
Offi ce equipment – accumulated depreciation
$ $
31/3/X8 Adjustment 200 1/4/X7 Balance b/fwd 8,050
Balance c/fwd 9,590 31/3/X8 Income statement 1,740
9,790 9,790
Small tools – accumulated depreciation
$ $
1/4/X7 Balance b/fwd 300
31/3/98 Balance c/d 400 31/3/X8 Income statement 100
400 400
ACCOUNTING FOR NON-CURRENT ASSETS
185
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Workings
Machine F $
Total cost 42,300
Inc. sales tax
(6,300)
Exc. sales tax 36,000
Less : maintenance (2,000)
Plant a/c 34,000
(b)
Disposal of non-current assets
$ $
31/3/X7 Plant at cost a/c 26,000 31/3/X7 Plant accumulated
depreciation a/c
11,700
A Jones 13,000
Loss on disposal
1,300
26,000 26,000
The offi ce equipment at cost and accumulated depreciation accounts could commence
with the balances after adjusting for the disposed printer, that is, $21,200 (offi ce equip-
ment at cost) and $7,850 (offi ce equipment accumulated depreciation).
(c) A non-current asset register should normally include:
1. a description of the asset;
2. the location of the asset;
3. the original cost of the asset;
4. the date of acquisition;
5. the purchase order reference;
6. the supplier’s name and address;
7. the estimated life of the asset;
8. the estimated residual value of the asset;
9. the rate and method of depreciation to be used;
10. the accumulative depreciation charged to date;
11. maintenance agreements and history;
12. insurance details.
ACCOUNTING FOR NON-CURRENT ASSETS
SOLUTIONS TO REVISION QUESTIONS C2
186
Solution 6
(a) Depreciation is the systematic allocation of the cost of an asset, less its residual value,
over its useful life.
(b) The purpose of depreciation is to allocate the cost of a non-current asset over its useful
life and thus match the cost of an asset in a period with the benefi t from its use. It is
an example of the application of the accruals concept.
Motor vehicles at cost
20X7 $ 20X7 $
Jan. Bank – Truck A 80,000 Dec. Balance c/d 80,000
20X8 20X8
Jan. Balance b/d 80,000 Mar. Disposal a/c – Truck A 80,000
Apr. Bank – Truck B 90,000
July Bank – Car C 20,000 Dec. Balance c/d 110,000
110,000 110,000
20X9 20X9
Jan. Balance b/d 110,000 Aug. Disposal a/c – Car C 20,000
Aug. Disposal a/c – Car C
part-exchange Car D
15,000
Bank – Car D 10,000 Dec. Balance c/d 115,000
135,000 135,000
Accumulated depreciation on motor vehicles
20X7 $ 20X7 $
Dec. Balance c/d 32,000 Dec. Depreciation charge –
Income statement
32,000
20X8 20X8
Mar. Disposal a/c – Truck A 35,200 Jan. Balance b/d 32,000
Mar. Depreciation charge
Truck A – Income
statement
3,200
Dec. Balance c/d 29,250 Dec. Depreciation charge –
Income statement
29,250
64,450 64,450
20X9 20X9
Jan. Balance b/d 29,250
Aug. Disposal a/c – Car C 4,875 Aug. Depreciation charge
Car C – Income
statement
2,625
Dec. Balance c/d 54,544 Dec. Depreciation charge –
Income statement
27,544
59,419 59,419
ACCOUNTING FOR NON-CURRENT ASSETS
187
FUNDAMENTALS OF FINANCIAL ACCOUNTING
Disposal of motor vehicles
20X8 $ 20X8 $
Mar. Vehicle cost a/c – Truck A 80,000 Mar. Accumulated
depreciation on
vehicle a/c –
Truck A
35,200
Dec. Income statement 15,200 Mar. Bank – proceeds
from Truck A
60,000
95,200 95,200
20X9 20X9
Aug. Vehicle cost
account – Car C
20,000 Aug. Accumulated
depreciation on
vehicle a/c –
Car C
4,875
Aug. Vehicle cost
account – Car C
part-exchange
Car D
15,000
Dec. Income statement 125
20,000 20,000
Workings: Depreciation
Year acquired Truckz A Truck B Car C Car D Total ($)
20X7 20X8 20X8 20X9
($)
80,000
($)
90,000
($)
20,000
($)
25,000
Depreciation charge 20X7
$80,000 40% (32,000) (32,000)
Depreciation charge 20X8
($80,000 $32,000)
40% 2/12
(3,200) (3,200)
$90,000 40% 9/12 (27,000) (27,000)
$20,000 90%
25% 6/12
(2,250) (2,250)
(29,250)
Written back on disposal 35,200
Depreciation charge 20X9
$20,000 90% 25%
7/12
(2,625) (2,625)
($90,000 $27,000)
40%
(25,200) (25,200)
$25,000 90% 25%
5/12
(2,344) (2,344)
(27,544)
Written back on disposal 4,875
Balance c/d (52,200) (2,344) (54,544)
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7
Preparation of Financial
Statements with Adjustments