TANGIBLEFIXEDAssets Buildings Vehicles

Depreciation
Machinery Furnituree
in Syllabus
Not
Amortisation INTANGIBLE FixedAssets Software Brands
Trademarks etc

the original cost

Depreciation in thatpart
of
the fixed auret that is consumed
of
during its
the business
period of
use
by
Decline fall value asset over
in
of fixed
BYnatiitheptitiation is an expense
Causes
ofDepreciationworsefailure
A DETERIORATION
fall decline in value
PHYSICAL
Wear Tear
Erosion Rusty decay rotten

B EconomicFACTORS
Obsolescence Obsolete out of date outdated
INADEQUACY When auset is no longerremain
remain in use because change of nature
of
business
of
or size

C Time Legal
life Expiration
 D Depletion Due to consumption wanting
characteristics

UsefulLife It estimate the

number
is
months
an
of
duvet of is
days to
years
a
remain in
fixed
service use likelythe business
by
Othernames expectedusage total hours total output
total units

ResidualVALUE ScrapVALUE SALVAGE VALUE Remaining

VALUE

Disposal VALUE It is an estimated value

of ata

fixed noset after its

full depreciation or
the end
of useful life
OR
The value which expected to receive when
is
the asset will be use from the
put out of
business or at the end its
of useful life
METHODS OF CALCULATINGDepreciation

1 STRAIGHT LINE METHOD SL Method

Torpya
Cost of FIXEDASSET Residual Scrap DisposalVALUE
TOTALUseful Number expected
 jy
to use

Formula

121 Rat
Costof FixedAsset Residual Swap Disposal of
Value Depreciation

E.g A vehicle was

bought E100,000 on 1
for JAN 2025
Business intends to are this vehicle a
for period of
10 years It estimated that at end its
is
vehicle will have a scrap value
of
useful life
residual value E10,000
of 2025
Req Calculate depreciation expense for the
2026 2027
year
Make relevant journal entries and prepare
relevant Accounts

Sol
Depreciation Expense Cost SwapValue
peryear Usefullife

100,000 10,000
10
1 Depreciation 9,000
peryear
Expense
It means fixedasset vehicle will love it value
by 59,000 eachyear under straightline method

2025 Depreciation Expense 9,000

 2026 Depreciation Expense 9,000
2027 Depreciation Expense 9,000

2 Journal Entry 2025 2026,20271

Depreciation Expense for the yearDebit in
NATURE

Dr Depreciation Expense PIL 9,000or

Cr AccumulatedDepreciation Bps 9,000
provision forDepreciation
2025 Credit in NATURE
PIL Extract
Expenses
Depreciation Expense xx 9,000

B S Extract
FixedAssets Non CurrentAssets
1 MOTOR Vehicle Cost 100,000
2 Less Accumulated provision x 9,000

3
forDepreciation
Book value Carryingvalue 91,001
NetBookValue

DR MOTOR VEHICLE Cost CR

1JAN25BALANCE B d
JAN25 BANK 100,000 31 Dec
2025BALANCE ad 100,000
100,002 1001001
2026
Jan26BALANCE B d 100,000 De
 2020 BALANCE Cld 200,000
100,01 100,002
JAN 27 BALANCE
Bld 100,000
BALANCE ad 100,000
1100 100,01
Dr Provision For Depreciation Cr
2202255 1 JAN25 BALANCE B d
1 Dec Balance c d 9,000 31 DecDepreciation 9,000
2025 Expense 2025
91 9001
1 jan
2026 BALANCEB d 9,000
31 Dec
2026 BALANCECld 18,000 31Dec Depreciation 9,000
2026 Expense
18,001
1 JAN BALANCE B d
2202277
18,000

BALANCE old 27,000 31 Dec Depreciation 9,000

2027 Expense
27000 271002
 Dr Depreciation Expense Cr
2025
31 Dec Provisionfor 9,000 Transfer to profit 9,000
2025 Depreciation Loa Account
9,002 9,000
2026
31 Dec Provision
for 9,000 Transfer to profit 9,000
2026 Depreciation Loll Account
100 9,000
2027
2Dec provision for 9,000 Transfer to profit 9,000
2027 Depreciation Loll Account
100 9,000

2026
PIL Extract
Expenses
Depreciation Expense 9,000

B S Extract
FixedAssets Non CurrentAssets
1 MOTOR Vehicle Cost 100,000
2 Less Accumulated provision
18,000
3
for
Depreciation
Book value Carryingvalue 82,001
NetBookValue
2027
PIL Extract
Expenses
Depreciation Expense 9,000

B S Extract
FixedAssets Non CurrentAssets
1 MOTOR Vehicle Cost 100,000
2 Less Accumulated provision
127,000
3
for
Depreciation
Book value CarryingValue 73,001
NetBookValue

AboveExample StraightLine Method 2

Eg MOTOR vehicle a E 100,000 cost
Revident value a E 10,000
Now instead Rate
is
of
which is
useful
10
life of Depreciation
given
Cost Less Residual Value Rate Depreciation
of
Depreciation 1109000 19000 x 10
Expense
E9,000per
year
Resteverything remains same journalentries T Accounts
Extracts
 2 REDUCING BALANCE METHOD WrittenDown VALUE
Method Diminishing Value Method
No concept of Scrap Residualvalue in this method
YEAR 1
Fixed for depreciation is deducted from
Cost Asset in First
of year
YEAR 2 Onwards
same above fixed 1 for depreciation is applied
on REDUCEDBALANCE

REDUCEDBALANCE COST ASSET

of XX
Lls Depreciation xx
Written 3ReducedBALANCE
Carryingvalue XX
Downer 4BookValue

Example
There is a machine
bought for E10,000 and depreciation
charged at 20 per annum on reducingbalance
is
method
Req CALCULAT Depreciation
Expense
2
for first three
3
years
1
Soc Machine cost 10,000
Less 1 Depreciation 10,000 201 2,000
Year
Reduced
31 Dec Balance
8,000
Carryingvalue BookValue
 Year2 Depreciation 8,00 201 1,600
31 Dec Book Value 6,400

YEAR 3 Depreciation 6,400 201 1,280

31 Dec Book Value 5,121
Journal Entries
for Depreciation Expense
31 Dec Year 1 Depreciation Expense 2,000
2,000
provision for Depreciation

31 Dec Year2 Depreciation Expense 1,600

4.600
provision for Depreciation

31 Dec year3 Depreciation Expense 1,280

1,280
provision for Depreciation

BIS Entracts
year 1
Non CurrentAssets
Machine Cost Accemulated 10,000
depreciation
Less Provision 12,0001
forvalue BookValue
Depreciation
8,000
Carrying

2
year
Machine Cost Accumulated 10000
depreciation
Less Provision
forDepreciation 3,600
2,000 1,600
 6,400
Year3
Machine cost 10,000
for
provision Depreciation 4,880
2,000 1,600 1,280
5,120
PIL Extracts
Expense
year 1 DepreciationExpense 2,000
year2 DepreciationExpense 2,600
Year DepreciationExpense 1,280

Formala
Cost Asset provisionfor Book
of value
Depreciation
Accumulated Carrying
Depreciation value
e.g 10,000 5,220
given Find given
Accumulated Cost of Asset Book Value
provision
for
Depreciation 10,000 5,220

4,880
Example Above same example but solve with Straightline
There is a machine
bought for E10,000 and depreciation
is
charged at 201 annum on
per line straight
method
SOL

Depreciation Expense Cost Residual

value Rate
o 20
peryear 10,000
2,000
peryear
three
Requirement Compare depreciation expense
of first
years
between
straightline balance
reducing
method

Comparison Under Under

StraightLine ReducingBalance
Method Method

Year 1 2,000 2,000

Year 2 2,000 1,600

Year3 2,000 1,280

Analysis
By using reducing balance method there is
higher
depreciation expense in firstyear chargeable to profit
loor income statement which
gradually decrease in
2 3 This could be due to higher
year year
depreciation in and
 1 8 y g y
lower repair maintenance in initial
years Which
means at subsequent
years repair maintenance
will be higher and lower depreciation expense

By using straightline method depreciation expense

is consistent throughouteach which
means machine net
year
loses decline its value
with constantamount

Buy Sale
 y
Additions Disposals Fixed Assets
of
There are two methods to account for
1 Charge full on additions and
year depreciation
Avets ignore dates when auvet is
opening
used
any
No depreciation is charged in the when asset
is sold disposed
year

2 Charge depreciation for the period portion of

the preiod when its used available for use
the business e.g 3 months 6 months 8 month etc
byconsider dates assetpurchased and aset sold
of
Apportion the depreciation
e
g
MONTHS in Use 4 7
TOTALMONTHSinperiod 12 12

yearend
current

31 Dec 2048

MACHINE A E
1 JAN 20 6 Machine A cost 2,000
31 Dec2016 Depreciation 2,000 1511 300
31 Dec 2046 BookValue 1,700
31 Dec 2017 1,700 1511 255
 I
31 Dec 2017 Bookvalue 1,445
31 Dec 2018 Depreciation 1,445 151 217
Book Value 1,221
Total 772
for
provision Depreciation
1300 255 2171
months in use sincepurchase date
MACHINE B E
1 Sep 2017 MachineB cost 4,000
31 Dec 2077 Depreciation 4,000 151 4 12 2001
31 Dec 2047 BookValue 3,800
31 Dec 2078 Depreciation 3,800 151 1570
BookValue 3,231
TOTAL provision 770
200
fordepreciation
5707
8month usedsincepurchasedate
MACHINE C
1 MAY 2048 Machine C cost 3,000
31 Dec 2048 Depreciation 3,000 151 812 300
31 Dec 2070 BookValue 2,700

TOTALProvision 300
for Depreciation

Req Prepare Balance sheetextracts for 20 8

2078Extracts
Non CurrentAssets E
MachineA cost 2,000
Less provision 7721
for Depreciation
2,228
Machine B cost 4,000
Less 770
provision
for Depreciation
3,230
Machine C Cost 3,000
Less 300
Provision
fordepreciation 2,700
HOMEWORK For Above Question Make one
T Account for Machine A B C and
one T account
for provision for
depreciation
 Disposal of FIXEDASSETS
SALE When auset is sold bythebusiness during our

period
Points 1 in question it mentions
If charge fullyear
depreciation on additions and no depreciation
on disposals I Do
Not CALCULATE Depreciation
on the asset in that period in
year
which it is disposed
off sold
2 Charge depreciation
for the period portion of
the preiod used by the business Upto the Date
ofDisposal in theyear Consider date of
disposal and charge depreciation by
calculating months year start date to the
date
of
disposal
v
w date to dirpose

Apportion
MONTHS in use ignorant
Depreciation Totalmonths inperiod

Disposal Sale of Fixed Assets

Look For Below items calculate
Blsitem Cost Asset
of
By item provision for Alicemulated Depreciation TotalAccumulated
Bls item Disposalproceeds CASH BANK money received
fromsale asset of
 income
Pc Gain Profit ondisposal of fixed net or
DL Expense
IDR
Loss on disposal
fixed vet
of
may ask for Disposal
Examiner Account SeeBelow

Dr Disposal Account Cr
novetpurchasedate to net
1 ASSET Cost 2 Provision Depreciation disposal
for
AccumulatedDepreciation
date

4 Gain ProfitER 3 CASH BANK Receivable

on sale income
statement 4 Loss ondisposalsale
Balancing DR incomestatement
Balancing

Gain onSale Disposal CASH Received Less BookValue

profit e.g 7,000 5,000

2,000
L
Cost 8,00
hell Accumulated3000
Depreciation
Bookvalue 5,000
Losson Disposal CASHReceived his BookValue

e.g 4,000 5,000

7 1,000
 Nov202192210 5
16

5 Simon has a business selling office stationery. On 1 January 2019 he owned two delivery vehicles
which had been purchased on 1 January 2018.

Delivery vehicle A had cost $30 000 and delivery vehicle B had cost $25 000.

Simon uses the straight-line method for depreciating the delivery vehicles. A rate of 20% per
annum on cost is used, with the rate being applied for each part of the year for which the delivery
vehicles are owned.
Disposal
Due to a decline in business, delivery vehicle B was sold on 31 March 2020 and a cheque for
$10 350 was received. Delivery vehicle A was still in use at the end of 2020.
Bykived
REQUIRED JAN2019 2020
11 JAN
(a) Complete the following accounts for each of the years ended 31 December 2019 and 2020.
Balance the accounts at the end of each year where appropriate.

Simon
Delivery vehicles account

Date Details $ Date Details $

2019
Jan 1 Balance b/d 55 000 .......... ......................................... ..............
Dec 31 Balanced
.......... ......................................... .............. .......... .........................................
59..............

.......... ......................................... ..............

57,1
.......... .........................................
2
..............

33
.......... Balarama
......................................... ..............
31
.......... ......................................... ..............

.......... ......................................... .............. MAR

.......... Disposal
......................................... 95,000
..............

.......... ......................................... .............. 29231 Balomacld

.......... ......................................... 39000
..............

.......... ......................................... .............. .......... ......................................... 55,00s

..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

© UCLES 2021 7707/22/O/N/21

 Vehicles
30,000
17
25,000
Provision for depreciation of delivery vehicles account
DR
Date Details $ Date Details $
Cr
2019
.......... ......................................... .............. Jan 1 Balance b/d 11 000

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... Depreciation expense 11,000

......................................... ..............

31 Dec .........................................
.......... .............. 2019 55,000 204 or
.......... ......................................... ..............

.......... Balance
2019 yd
......................................... 2,2000
.............. .......... 6,000 5,000
......................................... ..............

Accumulated Depreciation seeworking

.......... .........................................
date till 22102
.............. .......... ......................................... 22100L
..............
Asset
purchase
.......... ......................................... .............. jan .........................................
1.......... ..............
Assetdisposaldate BALANCEB d 22,000
g
.......... ......................................... .............. 2020
.......... ......................................... ..............

3hr Disposal
.......... ......................................... 11,250
.............. .......... Depreciation
......................................... ..............
2020
.......... ......................................... .............. .......... Expense _6,000
......................................... ..............

.......... ......................................... .............. .......... 30,000 201

......................................... 7,250
..............

.......... Balanced
......................................... 18,000
.............. .......... 25,000 20
......................................... ..............

.......... ......................................... .............. ..........

31,2
......................................... ..............

.......... ......................................... 2.............. .......... ......................................... 29250_

..............

.......... ......................................... .............. .......... ......................................... ..............

.......... ......................................... .............. .......... ......................................... ..............

value
Swap Residual
Workings
2018
2019 Vehicle A 30,000 0 201 6,000
Delivery
2020 DepreciationExpense
peryear
25,000 201 5,000
22 9 Deliveryvehicle B
DepreciationExpense
miatiminyearofdiuposal2020
peryear
25,000 20 51 gg because asset was usedfor
mmh Depreciation 3 monthsonly
e
5000 312 2,250

© UCLES 2021 7707/22/O/N/21 [Turn over

 Vehicle B
purchasedate till
Asset
18
Assetdisposaldate
Delivery vehicles disposal account
DR CR
Date Details $ Date Details $

31 Mar Delivery Vehicle B 11,250

..........
2020
........................................ 25,000
.............. .......... provision
for
........................................ ..............

Cost
.......... ........................................ .............. .......... Depreciation
........................................ ..............

.......... ........................................ .............. .......... 5,0005,000 1,254 ..............

........................................

.......... ........................................ .............. 3MAR

.......... BANK
........................................ 10,350
..............
2020
.......... ........................................ .............. .......... Income statement
........................................ 3,400
..............

.......... ........................................ .............. .......... Loss ondisposal

........................................ ..............
Balancing
.......... ........................................ 25,001
.............. .......... ........................................ 25,001
..............

[15]

Simon’s sister Yasmin is also in business and depreciates her delivery vehicles by the reducing
balance method.

Simon is considering whether to apply the reducing balance method of depreciation to his delivery
vehicles.

REQUIRED

(b) Advise Simon whether he should apply the reducing balance method of depreciation. Justify
your answer.

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

...................................................................................................................................................

............................................................................................................................................. [5]

[Total: 20]
© UCLES 2021 7707/22/O/N/21
 Revaluation Method
It is the method where business revalues
it's assets based on market value fairvalue
at the end each
of year
Conviderbookvalue
Cost Asset Book value inigginven
of 1,000
compare with
Revalued amount Valueheld Market Fair 700
Value Value
Depreciation Expense Income 300
Balancing statement

In 0 levels revaluation method is used

Loose tools Spare tools
for
912 Nov 17 Q 14
A cafe owner uses revaluation method to
calculate depreciation on kitchen equipment
Kitchen
equipment costing 3200purchased
on 1 JAN 2026 Useful
life is 4 years
Additions in kitchen equipment 400
during they
The total kitchen equipment was valued at 2900
on 31 Dec 2016

Req What was the

 1 dg
Dei 2016
g for
the ended 31
year
A 300 B 700 c 800 D 900

Cost 3200 400

of Equipment
Kitchen
3,600

compare
RevaluedAmount a 2,900
Depreciation charge 7,00

Dr Provision
for Depreciation Cr
3 Disposal xx 1 BALANCE B d XX
Audetwhich is disposed
Totalaccumulateddepreciation 2 Depreciation Expense xx
frompurchase date till flincome
statement
disposaldate
Alwaysmakeentry
BALANCEcld
from depreciation working
XX expense for theyear
 May2024P22 Q 14
DisposalDate
3 Receivable
sellingprice
On 30 April 2024, Lottie sold a motor vehicle for $6000 on credit to Y Limited. She had purchased
the vehicle on 1 May 2021 for $12 000. Lottie charges depreciation on vehicles at 25% using the
pupil reducing balance method. No depreciation is charged in the year of disposal.

REQUIRED 2024
Disposaldate
(c) (i) Calculate the accumulated depreciation on the vehicle at 30 April 2024.

1 MAY2021 MOTORVehicle cost 12,0 6

...........................................................................................................................................

30 2022 Depreciation 12,000

Apr 251 3,000
...........................................................................................................................................

30Apr NetBookValue2021 9,000

...........................................................................................................................................

30 Apr2023 Depreciation 9,000 251 2,250

...........................................................................................................................................

TOTAL AccumulatedDepreciation 3,000 2250

5,250
..................................................................................................................................... [2]

(ii) Prepare the disposal of motor vehicles account.

Lottie
DR Disposal of motor vehicles account CR
Date Details $ Date Details $

............ Motor Vehicle 30

............ Accumulated
30 Apr ..................................... 12,000
.............
Apr ..................................... 5,250
.............
2024
............ ..................................... ............. 2024
............ Depreciation
..................................... .............

............ ..................................... ............. ............ Receivable Yhimited6,000

..................................... .............

............ ..................................... ............. ............ Income statement

..................................... 750
.............

............ ..................................... ............. ............ Lois ondisposal

..................................... .............

121001 121002
[4]

© UCLES 2024 7707/22/M/J/24 [Turn over

MAY 2024P21Q 4 b
14

4 Ahmed owns a trading business. He prepares his financial statements to 31 December each year.
Ahmed had some unused office space and he decided to use some of this to store inventory and
to rent the rest to Bilal.
use
On 1 January 2023 Bilal started renting the office space from Ahmed. The annual rental charge is
$4800. During 2023 Bilal paid the following amounts of rent into Ahmed’s bank account.

$
1 April 3600
30 September 2400

REQUIRED

(a) Prepare Ahmed’s rent receivable account for the year ended 31 December 2023.
Balance the account and bring down the balance at 1 January 2024.

Ahmed
Rent receivable account
Date Details $ Date Details $

............. ................................. ............ ............ ................................. ............

............. ................................. ............ ............ ................................. ............

............. ................................. ............ ............ ................................. ............

............. ................................. ............ ............ ................................. ............

price Disposaldate Receivable [3]

Disposal selling
f
Ahmed sold e old office equipment for $1350 on 3 January 2023, on credit to Rahat. The equipment
had been purchased for $3200 on 1 January 2021. Ahmed charges depreciation at 25% per annum
using the reducing balance method. He does not charge depreciation in the year of disposal.
costTenase
REQUIRED
date 2023 Do
[Link]
(b) Prepare the disposal of office equipment account.

Ahmed
Disposal of office equipment account
Date Details $ Date Details $

3.............
JAN23 Equipment Jan23 Provision
............ 3............ ................................. 1,400
cost 3,200
.................................
for ............

............. ................................. ............ ............ Depreciation

................................. ............

............. ................................. ............ ............

Receivable
................................. 1,350
............

450
............. ................................. ............ ............
[Link]
................................. ............
0

ÉÉ
[5]
TotalAccumulatedDepreciation Provision for Depreciation
80
Depreciation for 31 Dec 2022 3,200 25 1
© UCLES 2024
Depreciation for31 Dec 3,200800
7707/21/M/J/24 251 600
11402
HOMEWORK M
Nov 2021 P21 P23 Q 2 Cyd
part
Nov 2020 P21 Q 1
Nov 2019 P21 Q 2