TANGIBLEFIXEDAssets Vehicles

Depreciation Buildings Machinery

Furnituree
NotinSyllabus
Assets Brands
Amortisation INTANGIBLE Fixed Software
Trademarks etc

part
Depreciation in that
of the original cost of
the auret that is consumed its
fixed during
period
of use by the business
Decline in value fixedasset over
fall of
natiitheptitiation
BY is
an
expense
Causes
ofDepreciationworsefailurefalldeclineinvalue
A PHYSICALDETERIORATION
Wear Tear
Erosion Rusty rotten
decay
B EconomicFACTORS
out
Obsolescence Obsolete of date outdated
When
INADEQUACY auset is
no
longerremain
 nature
remain in use
because
of change
of
size
or ofbusiness

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

Useful It is an estimate the number

Life of of days
months is to remain in
years a
fixed duvet likely
the business
service
use
by
Other expected total hours total
names usage output total units

ResidualVALUE ScrapVALUE SALVAGEVALUE Remaining VALUE

value noset
Disposal
VALUE
of fixed
It is an estimated a

depreciation or at end its useful

after full the of life
OR
is to receive when be
The valuewhich expected the asset will

put
out
of use from the
business or at the
end
of its
useful
life METHODS OF CALCULATINGDepreciation
1 STRAIGHT
LINE METHOD SLMethod
FIXEDASSET Residual Scrap VALUE
Torpya Cost of Disposal
TOTAL
UsefulNumberexpected
to use

Formula

121 FixedAsset Residual

Costof SwapDisposal Ratof Value
Depreciation

A vehicle was E100,000 on

E.g boughtfor 1 JAN2025
period
Businessintends
to are this
vehicle
for a
of 10years It is
estimated that at
end
of its useful life vehicle will have a scrap
value E10,000
value residual of
Calculate depreciation the
Req expense for year2025 2026
2027
relevant entries and
Make journal prepare relevant Accounts

Sol
DepreciationExpense Cost SwapValue
per Useful
year life
100,000 10,000
10
9,000
1 Depreciation peryear Expense
means asset vehicle
It fixed will love it value
59,000each under
by year straightline method
2025 Depreciation Expense 9,000
2026 Depreciation Expense 9,000
2027 Depreciation Expense 9,000

Journal 20252026,20271
2 Entry
the Debit in
Depreciation Expense for year NATURE Dr
Depreciation
Expense PIL 9,000or
AccumulatedDepreciation
Cr Bps9,000
provision Depreciation
for
Extract
2025 Creditin NATURE PIL
Expenses
xx 9,000
DepreciationExpense

BS Extract
 Assets NonCurrentAssets
Fixed
MOTORVehicle Cost 100,000 provision
1 2 Less Accumulated x
9,000
for Depreciation
value value
3 Book Carrying 91,001 NetBookValue
JAN25BALANCE d
DR MOTOR VEHICLE Cost CR 1 B
25
JAN BANK 100,000 31 Dec
2025BALANCE
ad 100,000
100,002 1001001
2026
B
100,000
Jan26BALANCE d De
BALANCE 200,000
2020 Cld
100,01 100,002
JAN BALANCE 100,000 BALANCE
27 Bld ad 100,000
1100 100,01
Provision For
Dr Depreciation Cr
2202255
1 JAN25 BALANCE B
31Dec 2025
d 1 Dec Balance c d 9,000 Depreciation 9,000
Expense 2025
1 jan9001
 91

B
2026 BALANCE d 9,000
Dec
31
BALANCE
2026 Cld 18,000 31Dec Depreciation 9,000 2026
Expense
18,001
JAN Bd
1 BALANCE 18,000 2202277
BALANCE 27,000 Dec 2027
old 31 Depreciation 9,000
Expense
27000 271002
Depreciation Cr
Dr Expense 2025
9,000 to 9,000
31 Dec
Provision
for Transfer profit 2025
Account
Depreciation Loa
9,000
9,002
2026
9,000 to 9,000 2026
31 Dec
Provision
for Transfer profit
Account
Depreciation Loll
2027 9,000
100
9,000 to 9,000 2027
2
Dec provision
for Transfer profit
Account
Depreciation Loll
9,000
100
2026
Extract
PIL
Expenses
9,000
DepreciationExpense

BS Extract
Assets
Fixed NonCurrentAssets
MOTORVehicle Cost 100,000
1 2 Less
Accumulated provision
Depreciation
for 18,000
value value
3 Book Carrying 82,001 NetBookValue
2027
Extract
PIL
Expenses
 9,000
DepreciationExpense

BS Extract
Assets NonCurrentAssets
Fixed
MOTORVehicle Cost 100,000
1 2 Less
Accumulated provision
Depreciation
for 127,000
value Value
3 Book Carrying 73,001 NetBookValue
Above StraightLine Method 2
Eg Example
MOTOR
vehicle a E 100,000 cost
Revident value a E 10,000
instead useful Rate
Now of life of Depreciation is

which is 10
given
Rate
Cost Less ResidualValue ofDepreciation
Depreciation Expense
E
9,000
peryear
x 10
1109000 19000
 same T Accounts
Resteverythingremains journalentries
Extracts
2 REDUCINGBALANCEMETHOD WrittenDown VALUE
Method
Diminishing Value Method
Scrap
No
concept
of Residualvalue in this
1
method YEAR
Fixed depreciation is deducted
for from
Cost Asset in First
of year
YEAR 2 Onwards
above 1
same fixed for depreciation is applied on
REDUCED
BALANCE

REDUCED
BALANCE
COST
of ASSET XX
Lls Depreciation xx
3 BALANCE
CarryingvalueWritten Reduced XX
Downer 4BookValue

Example
 machine E10,000 and depreciation is
There is a bought for
20
charged at per annum on reducingbalance method
Req CALCULAT Depreciation
Expense
for first
three 1
years 1 2 3 Soc Machine cost 10,000 Year
ess

Depreciation 10,000 ReducedBalance

201 2,000 31 Dec
8,000 Carryingvalue BookValue
2
Year Depreciation 8,00 201 1,600 31 Dec
Value
Book 6,400

3 Dec
YEAR Depreciation 6,400 201 1,280 31
Value
Book 5,121
Entries
Journal forDepreciation Expense
Dec 1
31 Year Depreciation Expense 2,000
provision Depreciation
for 2,000
provision
31
Dec 2
Year Depreciation Expense 1,600 for
Depreciation
4.600
 provision
31
Dec
year3 Depreciation Expense 1,280 for
Depreciation
1,280
Entracts
BIS
1
year
Non CurrentAssets
Machine Cost Accemulated 10,000
value
Less Provision
for Depreciationdepreciation
12,0001 Carrying
BookValue
8,000
2
year Machine Cost Accumulated 10000 Less
Provision
forDepreciation depreciation
3,600 2,000 1,600

3 cost PILExtracts
Year Machine 10,000
provision
forDepreciation 4,880 2,000 Expense
6,400 5,120
1,600 1,280

1 2
year DepreciationExpense 2,000 year DepreciationExpense
2,600 Year DepreciationExpense 1,280
 Formala
Cost Asset provision Book
of for
Depreciation value
Accumulated Carrying
Depreciation
value
10,000 5,220 Find
e.g given given

Accumulated Cost Asset Book Value

of
provision
for
Depreciation 10,000 5,220
4,880
same but solve with
Example Above example Straightline
machine E10,000 and depreciation is
There is a bought for
201
charged at per annum on straight line method
SOL
Expense Residualvalue Rate
Depreciation Cost peryear 10,000 o
20
2,000per
year
first three
Requirement
Compare
depreciation expense
of
yearsbetween straightline reducingbalance method

Comparison Under Under

StraightLine ReducingBalance
Method Method

Year 1 2,000 2,000

Year 2 2,000 1,600

3 2,000 1,280
Year
Analysis
in
By using reducing balance method there is higher depreciation expense
chargeable to statement which
firstyear profit loor income
2 3 This could be due to
gradually decrease in year year higher
dereciation in and

initial
lower repair maintenance in years Which means at
subsequent
years repair maintenance will be higher and
lower depreciation expense

By using straightline method depreciationexpense is consistent

each which
throughout year
means machine net loses decline its value with
constantamount
Bu Sale
Disposals Fixed Assets
Additions of
account
There are two methods to for
on additions and
1 Charge full year depreciation opening

ignore dates when auvet is

Avets any used
the
is
No depreciation charged in yearwhen asset is sold disposed

the portion
the
2 Charge
depreciation
for period of
when its used available use the business
preiod for by e.g
3 months 6 months 8month etc dates assetpurchased
consider of
and aset sold
e MONTHS
Apportion thedepreciation g in
U
s
e

7
 4
MONTHSin current end 12
TOTAL perio year
d 12

31 Dec2048

MACHINE
AE 1 JAN206 Machine A cost 2,000 31
2016 300
Dec Depreciation 2,000 1511
Value
31 Dec 2046 Book 1,700 31 Dec 2017 1,700
1511 255
value
31 Dec 2017 Book 1,445 31 Dec 2018 Depreciation 1,445
217 Value
151 Book 1,221
Depreciation 772
Total
provision
for 1300 255 2171
months in usesincepurchase date
1
MACHINE B E Sep 2017 MachineB cost 4,000 31 Dec
2077 4,000 151 4 Value
Depreciation 12 2001 31 Dec 2047 Book
3,800
Value
31 Dec 2078 Depreciation 3,800 151 1570 Book 3,231

depreciation 200
TOTAL
provision
for 770 5707
8monthusedsincepurchasedate
MACHINE
C
C Dec 2048
1 MAY2048 Machine cost 3,000 31 Depreciation
3,000 151 8 Dec Value
12 300 31 2070 Book 2,700

Provision Depreciation
TOTAL for 300
Balance sheetextracts 20 8
Req Prepare for 2078Extracts
Non CurrentAssets E MachineA cost 2,000
Depreciation 7721 Machine
Less provision
for 2,228
B cost 4,000
Depreciation 770
Less provision
for 3,230 MachineC
Cost
3,000
depreciation 300
Less Provision
for 2,700

HOMEWORK Above
For Question Make one T
 Account Machine A B
for C
and one T
account provision
for for
depreciation
Disposal FIXEDASSETS
of
sold
SALE When auset is bythebusinessduring our
period
1 mentions charge
Points If in
question it fullyear
Do
no
depreciation on additions and depreciation disposals
on
I
Not CALCULATE that
Depreciation on the asset in year
period in is disposed sold
which it off
the portion
the
2 Charge depreciation
for period of
used thebusiness to the Date
preiod by Up
Disposal in the Considerdate
of year of
depreciation
disposal and charge by
months start date to the
calculating year
date disposal to
of v MONTHS in
w date dirpose
use

Apportion
Depreciation
ignorant Totalmonths inperiod

Sale FixedAssets
Disposal of
Look For Belowitems calculate
item Cost Asset
Bls of
Byitem provision for AlicemulatedDepreciation TotalAccumulated
item BANK received
Bls Disposalproceeds CASH money
sale asset
of
from
income Gain on disposal fixed net
Pc Profit of or DL

on disposal
fixed vet
Expense Loss of
IDR

Examiner ask Disposal

may for Account
SeeBelow

Account
Dr Disposal Cr novetpurchasedate to net
 ASSET Provision
1 Cost 2 forDepreciation disposal
AccumulatedDepreciationdate

Gain Profit
4 ER 3 CASH BANK payable on sale
income

statement Losson
4 disposalsale
Balancing DR incomestatement
Balancing

Sale CASHReceived Less BookValue

Gain on Disposal
7,000 Cost
profit e.g 2,000 8,00
5,000
hell Accumulated3000 Depreciation
L
Bookvalue 5,000
Received
Losson Disposal CASH his BookValue e.g
4,000 5,000
7
1,000
5
Nov202192210
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 $30000 and delivery vehicle B had cost $25000.
 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

Bykived $10350 was received. Delivery vehicle A was still in use at the
end of 2020.

REQUIRED
11JAN2019 JAN2020
(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 55000 .......... ..................................... ..............
Dec Balanced
.......... ......................................... .............. ....
5
9
.....................................
.......... ..................................... .............. 31 ..
33 .... Balarama 57, ........ .... ................................

......... ...........................
.......... 1 ..........

..........
..................................... .............. ..........
.............. Disposal 2
.... ................................ ..............
31 ..............
.......... .....................................
......... ........................... ..............
..............
.......... MA
.............. ...................... .... Balomacld ..............
..............
.......... .....................................
................... ................. R .... 95,00
..............
.......... ...... .... ................................
........................ ............ 0 ......
..........
.............. 292 ......... ........................... ........
............................. .......
..........
.............. 31 ... .............. ...................... 3900
.................................. ..
.............. .......
.......... ..................................... ................... ................. 0 ......
.............. .......... ........
.......... .. .................................. ........................ ............

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

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

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

© UCLES 2021 7707/22/O/N/21

17

30,000
25,000
Provision for depreciation of delivery vehicles account

DR Cr
Date Details $ Date Details $
2019
.......... ..................................... .............. Jan 1 Balance b/d 11000

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

.......... ......... ........................... .............. .......... Depreciationexpen 11,0

31D .............. .............. 20 se 00 .....
ec ..................................... 2,200 19 . ..................................... .........
..........
Balance 0 ....... ......... ..............
20 .... yd ....... .......... .... 55,000 204 ..............
.....................................
19.. 221 .......... or 2210
........ Depreciation 1
....
.......... 02 ..... jan ..................................... 0L .......
purc .......
date ......... ..........
.... 6,000 5,000
has till .............. 202
..............
e ..................................... 22,00
.............. 0 ....
.......... ......................................... .... seeworking
dispos 11,2 ...... ......................................... 0 ......
.....................................
........
al.......... date 50 .... ..........
g
.....................................
..............
3h .... .......... ..........
....
BALANCE
B ..............
..............
r Disposal ..........
d
.......... ..................................... .............. .......... 7,2
 20 .... ................................ .....................................
18,0 .......... 50 ...
20 . ......... ...........................
....... .... Depreciation ...........
.. ..............
00 ...... ..........
..............
........ .......... .........................................
.......... ..................................... ..............
..............
.... .......... Expense
29250
Balanced
..........
2
.......... .....................................
..............
_6,000 _.............
.......... .... ................................ ..............
..................................... .
.......... ......... ........................... .............. ..............
.... 30,000 201
.......... .............. ...................... ..............
.....................................
................... .................
25,000
....
........................

20
31,2
.....................................

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

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

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

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

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

Accumulated
Asset
Asset
 SwapResidualvalue
Workings
2018

2019 A 30,000
DeliveryVehicle 0 201 6,000
2020 DepreciationExpense
per
year
22 9 DeliveryvehicleB 25,000 201 5,000
DepreciationExpense
Depreciation miatiminyearofdiuposal2020
mmh e25,000 20 51 gg
per used
year because assetwas for 3monthsonly
5000
312 2,250

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

date
Vehicle B Assetpurchase till
18

Delivery vehicles disposal account

Assetdisposaldate
DR CR
Date Details $ Date Details $

31 VehicleB 25,00 11,2

Mar
Delivery .......... provision
for
..........
..................................... 0 ........ .......... ..................................... 50 .....
202 ... Cost ...... .......... ... Depreciation
.........

0 .... .....................................
..............
3MA ..............
...... ......................................
... ................................. .............. R ..............
.......... .. 5,0005,000
..........
....... ............................. .............. 202 10,3
.......... 0 .... 1,254 .......................
........... ......................... .............. ......
................. BANK 50 ......
..........
............... ..................... .............. .......... ..................................... ........
..........
 ................... ................. ...
3,40
..........
.......................
25,0 ..........
Incomestateme
0 .....
01 ...... nt ................................ .........
........ ........
..............
Loss disposal
on 25,0
.....................................
01....
... Balancing
........................................ ..........

[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
 is the method where business revalues
It it's assets based on
value end each
market fair value
at the of year
Conviderbookvalue
Cost Asset Bookvalue inigginven 1,000 with
of compare
Fair
Revalued amount ValueheldMarket 700 Value
Value
Depreciation Expense Income 300
statement
Balancing
Loose tools
In 0 levels revaluation method is
used for
tools
Spare
Nov 17 14
912 Q
A owner uses revaluation method to
cafe calculate
kitchen equipment Kitchen
depreciation on
3200 2026
equipmentcosting purchased on 1 JAN
Useful is 4
life years Additions in
kitchen

equipment 400
during they The total kitchen equipment
 Dec
was valued at 2900 on 31 2016

Re What was the

the ended 31 Dei

year 2016

Cost Equipment 3200

B c
A 300 700 800 900
D
of
400 3,600 Kitchen
compare
Revalued Depreciation
Amount 2,900 a
charge 7,00

Provision
Depreciation 3
Dr for Cr
xx 1 BALANCE B d is
Disposal XX Audetwhich disposed
Totalaccumulateddepreciation 2 DepreciationExpense xx
till statement
frompurchasedate flincome
make
disposaldate Always entry
 depreciation working BALANCE expense
from cld XX
for theyear