QUESTION:Johnson & Co, a building and construction firm, commenced trading on 1 January Year 6. During the three years to 31 December Year 8, the company bought and sold motor vehicles for use in the business as follows:
The firm provides for depreciation of its motor vehicles at the rate of 20% per annum of the straight line basis, with no residual value. A full year’s depreciation is provided for motor vehicles bought before 1 July but no depreciation is provided in the year of disposal. Required: (1) Prepared in the books of Johnson & Co for the period 1 January Year 6 to 31 December Year 8, balancing the accounts each year, the following: (a) Using the straight line basis for depreciation: (i) Motor Vehicles Account (ii) Provision for Depreciation Account (iii) Motor Vehicles Disposal Account
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ANSWER (a) (i) Motor Vehicles Account
(ii) Workings: E762 –Depreciation on straight line basis (1) Year 6 : 20% x $12,000=$2,400 (2) Year 7 : 20% x $26,000=$5,200 (3) Year 8 : 20% x $30,000=$6,000
(4) Provision for Depreciation (E762) =20% x$12,000 x 2 yrs =$4,800
(a) (ii) Provision For Depreciation Account
(a) (iii) Motor Vehicle Disposal Account
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