Question 4.17: Brian Box prospers in his computer software business, and be...
Brian Box prospers in his computer software business, and before long he purchases a car for himself, and later for his chief assistant Bill Ockhead. Relevant data is as follows
The straight line method of depreciation is to be used.
Prepare the motor vehicles account and motor vehicle depreciation account for the years to 28 February 20X7 and 20X8. (You should allow for the part-year’s use of a car in computing the annual charge for depreciation.)
Calculate the carrying amount of the motor vehicles as at 28 February 20X8.
| Date of purchase | Cost | Estimated life | Estimated residual value | |
| Brian Box car | 1 June 20X6 | $20,000 | 3 years | $2,000 |
| Bill Ockhead car | 1 June 20X7 | $8,000 | 3 years | $2,000 |
(a) (i) Brian Box car Annual depreciation \frac{\$\left(20,000-2,000\right) }{3\quad years}=\quad \$6,000 \quad pa
Monthly depreciation = $500
Depreciation 1 June 20X6 – 28 February 20X7 (9 months) $4,500
1 March 20X7 – 28 February 20X8 $6,000
(ii) Bill Ockhead car Annual depreciation \frac{\$\left(8,000-2,000\right) }{3\quad years}=\quad \$2,000 \quad pa
Depreciation 1 June 20X7 – 28 February 20X8 (9 months) $1,500
(b) MOTOR VEHICLES
| Date | $ | Date | $ | ||
| 1 Jun 20X6 | Payables (or cash) | ||||
| (car purchase) | \underline{\underline{20,000}} | 28 Feb 20X7 | Balance c/d | \underline{\underline{20,000}} | |
| 1 Mar 20X7 | Balance b/d | 20,000 | |||
| 1 Jun 20X7 | Payables (or cash) | ||||
| (car purchase) | 8,000 | 28 Feb 20X8 | Balance c/d | 28,000 | |
| \underline{\underline{28,000}} | \underline{\underline{28,000}} | ||||
| 1 Mar 20X8 | Balance b/d | 28,000 |
MOTOR VEHICLES – ACCUMULATED DEPRECIATION
| Date | $ | Date | $ | ||
| 28 Feb 20X7 | Balance c/d | \underline{\underline{4,500}} | 28 Feb 20X7 | I & E account | \underline{\underline{4,500}} |
| 1 Mar 20X7 | Balance b/d | 4,500 | |||
| 28 Feb 20X8 | Balance c/d | \underline{12,000} | 28 Feb 20X8 | I & E account | 7,500 |
| \underline{\qquad} | \left(6,000+1,500\right) | \underline{\qquad} | |||
| \underline{\underline{12,000}} | 12,000 | ||||
| 1 Mar 20X8 | Balance b/d | 12,000 |
STATEMENT OF FINANCIAL POSITION (WORKINGS) AS AT 28 FEBRUARY 20X8
| Brian | Box car | Bill | Ockhead car | Total | |
| $ | $ | $ | $ | $ | |
| Asset at cost | 20,000 | 8,000 | 28,000 | ||
| Accumulated depreciation | |||||
| Year to 28 Feb 20X7 | 4,500 | — | |||
| Year to 28 Feb 20X8 | \underline{6,000} | \underline{1,500} | |||
| \underline{10,500} | \underline{1,500} | \underline{12,000} | |||
| Carrying amount | \underline{\underline{9,500}} | \underline{\underline{6,500}} | \underline{\underline{16,000}} |