Page 240 - Accountancy_F5

Each machine was estimated to last 10 years and to have a residual value of 5 per cent
of its cost price. Depreciation was by equal instalments, and it is company’s policy to
charge depreciation for every month an asset is owned.

Required: Calculate:
(a) The total depreciation on machinery for each of the years 2018, 2019, and 2020,
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(b) The profit or loss on the disposal of machine 3 in year 2020.

7. A machine is bought on 1st January, 2019 for TZS 10,000,000 and another one on
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1 October 2020 for TZS 12,000,000. The first machine was sold on 30th June,
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2021, for TZS 7,200,000. The business financial year ends on 31 December.
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The machines are depreciated at 10 per cent using the straight-line method.
Machines, which exist at the end of each year are depreciated for a full year. No
depreciation is charged on any machinery disposed of during the year.

Required: Prepare the following:
(a) The machinery account,
(b) The machinery accumulated depreciations account,
(c) Machinery disposal account,
(d) Extract of income statement for the years that ended 31 Dec. 2019, 2020 and
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2021,
(e) Extract of the statement of financial position as at 31 Dec. 2019, 2020 and 2021.
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8. A business buys a non-current asset for TZS 10,000,000. The business estimates
that the asset will be used for 5 years. However, after exactly 2.5 years, the
asset was suddenly sold for TZS 5,000,000. The business provides a full year’s
depreciation in the year of purchase and no depreciation in the year of disposal.
Required:

(a) Write up the relevant accounts (including disposal account but not income statement
for each of years 1, 2 and 3.
(i) Using the straight-line depreciation method (assume 20 per cent per annum),

(ii) Using the reducing balance depreciation method (assume 40 per cent per
annum).
(b) What is the purpose of depreciation? In what circumstances would each of the
two methods you have used in (a) above be preferable?
(c) What is the meaning of the net figure for the non-current asset in the statement of
financial position at the end of year 2?

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