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A company buys an item having a useful life of 10 years for N1,000,000. If the company depreciates the item by the reducing balance method:
a. Determine the depreciation for the first year.
b. Estimate the depreciation for the second and third years.
c. What is the salvage value of the asset?
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a. On January 1, 2013, Ajanaku Enterprises bought a motor vehicle for N1,850,000 with an estimated life span of four years and a residual value of N50,000.
i. Determine the depreciation rate, using the reducing balance method. (2 Marks)
ii. Using the rate of depreciation derived in (i) above, calculate the amount of depreciation for the years 2013 and 2014 respectively. Also, disclose the carrying amount of the asset at the end of December 31, 2014. (3 Marks)
b. The following transactions were recorded in the books of Lexus Enterprises for the three months ended March 31, 2014.
| Date | Description |
|---|---|
| Jan. 1 | Commenced business by introducing N250,000 into a bank. |
| Jan. 5 | Bought N50,000 furniture from Adam Enterprises on credit. |
| Jan. 15 | Bought office stationery for N1,000 paying by cheque. |
| Jan. 28 | Bought goods for resale worth N25,000 paying by cheque. |
| Feb. 2 | Paid Adam Enterprises a cheque of N35,000. |
| Feb. 3 | Rent of N30,000 for business premises was paid by cheque. |
| Mar. 5 | Bought goods on credit from Jay Enterprises for N35,000. |
| Mar. 8 | Bought office stationery for N500 paying by cheque. |
Required:
i. Post the above transactions in the relevant ledger accounts and balance the accounts. (15 Marks)
(Total 20 Marks)
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On January 1, 2017, Jos Limited acquired a motor vehicle for ₦4,500,000. The estimated useful life of the motor vehicle is four years, and its residual value at the end of the useful life is ₦300,000.
Required:
Calculate the depreciation charged for the first two years using:
(i) The straight-line method (4 Marks)
(ii) The reducing balance method (4 Marks)
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b. Buma Limited recently acquired a piece of equipment for ₦1,600,000. The equipment has an estimated useful life of 5 years with no residual value. The company estimates the rates of depreciation under the straight-line method to be 20% and the reducing balance method to be 30%. It is still considering which of the two depreciation methods to adopt and requires ledger records to make a final decision.
Required:
i. Present the ledger accounts to record the transaction for the first three years using the straight-line method. (6 Marks)
ii. Present the ledger accounts to record the transaction for the first three years using the reducing balance method. (6 Marks)
c. Show the extracts from the statement of financial position at the end of the third year for the two methods. (3 Marks)
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Find Related Questions by Tags, levels, etc.
A company buys an item having a useful life of 10 years for N1,000,000. If the company depreciates the item by the reducing balance method:
a. Determine the depreciation for the first year.
b. Estimate the depreciation for the second and third years.
c. What is the salvage value of the asset?
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a. On January 1, 2013, Ajanaku Enterprises bought a motor vehicle for N1,850,000 with an estimated life span of four years and a residual value of N50,000.
i. Determine the depreciation rate, using the reducing balance method. (2 Marks)
ii. Using the rate of depreciation derived in (i) above, calculate the amount of depreciation for the years 2013 and 2014 respectively. Also, disclose the carrying amount of the asset at the end of December 31, 2014. (3 Marks)
b. The following transactions were recorded in the books of Lexus Enterprises for the three months ended March 31, 2014.
| Date | Description |
|---|---|
| Jan. 1 | Commenced business by introducing N250,000 into a bank. |
| Jan. 5 | Bought N50,000 furniture from Adam Enterprises on credit. |
| Jan. 15 | Bought office stationery for N1,000 paying by cheque. |
| Jan. 28 | Bought goods for resale worth N25,000 paying by cheque. |
| Feb. 2 | Paid Adam Enterprises a cheque of N35,000. |
| Feb. 3 | Rent of N30,000 for business premises was paid by cheque. |
| Mar. 5 | Bought goods on credit from Jay Enterprises for N35,000. |
| Mar. 8 | Bought office stationery for N500 paying by cheque. |
Required:
i. Post the above transactions in the relevant ledger accounts and balance the accounts. (15 Marks)
(Total 20 Marks)
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On January 1, 2017, Jos Limited acquired a motor vehicle for ₦4,500,000. The estimated useful life of the motor vehicle is four years, and its residual value at the end of the useful life is ₦300,000.
Required:
Calculate the depreciation charged for the first two years using:
(i) The straight-line method (4 Marks)
(ii) The reducing balance method (4 Marks)
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b. Buma Limited recently acquired a piece of equipment for ₦1,600,000. The equipment has an estimated useful life of 5 years with no residual value. The company estimates the rates of depreciation under the straight-line method to be 20% and the reducing balance method to be 30%. It is still considering which of the two depreciation methods to adopt and requires ledger records to make a final decision.
Required:
i. Present the ledger accounts to record the transaction for the first three years using the straight-line method. (6 Marks)
ii. Present the ledger accounts to record the transaction for the first three years using the reducing balance method. (6 Marks)
c. Show the extracts from the statement of financial position at the end of the third year for the two methods. (3 Marks)
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