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Depreciation of Fixed Assets Ace Haulage Ltd - Leaving Cert Accounting - Question 3 - 2005
Question 3
Depreciation of Fixed Assets Ace Haulage Ltd. prepares its final accounts to 31st December each year. The company’s policy is to depreciate its vehicles at the rate... show full transcript
Worked Solution & Example Answer:Depreciation of Fixed Assets Ace Haulage Ltd - Leaving Cert Accounting - Question 3 - 2005
Step 1
The Vehicles Account
Answer
The Vehicles Account reflects the transactions involving all vehicles owned by Ace Haulage Ltd.
Account Entries for 2003:
- Balance b/d as of 01/01/2003: €258,000
- Purchases:
- Vehicle 2 purchased on 1/8/2000 for €80,000
- Vehicle 3 purchased on 1/4/2001 for €88,000
- Disposal on 01/05/2003 (Value of Vehicle 2): -€80,000
- Balance c/d as of 31/12/2003: €258,000 + €80,000 - €80,000 = €258,000
Account Entries for 2004:
- Balance b/d as of 01/01/2004: €258,000
- Purchases: Vehicle 1 traded in for €24,000
- Disposal on 31/12/2004 (Value of Vehicle 1): -€24,000
- Balance c/d as of 31/12/2004: €258,000 - €24,000 = €234,000
Final Balances:
- 2003 Balance c/d: €258,000
- 2004 Balance c/d: €234,000
Step 2
The Vehicle Disposal Account
Answer
The Vehicle Disposal Account shows the disposal transactions related to vehicles traded in.
Disposal Transactions:
For Vehicle 2:
- Cost of disposed vehicle: €80,000
- Less: Compensation received: €30,000
- Profit on Disposal: €30,000 (from the transaction of trading in Vehicle 2)
For Vehicle 1:
- Cost of disposed vehicle: €24,000
- Profit: TBD based on future calculations.
Summary:
- Total proceeds from disposals in 2003 and 2004: €90,000
Step 3
The Provision for Depreciation Account
Answer
The Provision for Depreciation Account summarizes depreciation charged on vehicles.
2003 Provisions:
- Provision for Vehicle 1: €10,500 (15% of €70,000)
- Provision for Vehicle 2: €12,000 (15% of €80,000)
- Provision for Vehicle 3: €13,200 (15% of €88,000)
2004 Provisions:
- Provision for Vehicles: Adjustments post-disposal and per remaining useful life of remaining vehicles.
Total Provisions Recorded:
- End of 2003: €39,700
- End of 2004: Adjusted based on disposals and new acquisitions.
Step 4
What factors are taken into account in arriving at the annual depreciation charge
Answer
When calculating the annual depreciation charge, the following factors are considered:
- Cost of the Asset: The initial purchase price.
- Estimated Useful Life: The projected lifespan of the asset before it is no longer useful.
- Residual Value: The expected value at the end of its useful life.
- Method of Depreciation: The chosen method (e.g., straight-line, reducing balance) affects the expense.
These factors ensure that depreciation accurately reflects the consumption of the asset's economic benefits over time.