CSEC Scholars- Online

Principles of Accounts

June 2014 Paper 2 Question 4

Excerpt
 CSEC Scholars- Online
Principles of Accounts
Solutions

a) Define EACH of the following accounting terms. Give ONE example in EACH case. (For
questions like these, it’s good to give examples where applicable to boost your chances of
getting the full marks)
(i) Fixed asset
ANSWER: A fixed asset is an asset of some value to a business which lasts for over
one year. E.g.: machinery, motor vehicles, etc..
(ii) Useful life
ANSWER: This is the estimated optimal lifespan of a fixed asset
(iii) Net book value
ANSWER: This is the value of a fixed asset after the accumulated depreciation value
is deducted from the cost price of the asset.

b)
i) Calculate the depreciation charge on the delivery van for the year ended 30 April
2014 using the straight line method. (Show working clearly.)

ANSWER:
(Using the Straight Line Method)

𝑪𝒐𝒔𝒕 𝒑𝒓𝒊𝒄𝒆 −𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆𝒅 𝒅𝒊𝒔𝒑𝒐𝒔𝒂𝒍 𝒗𝒂𝒍𝒖𝒆

Depreciation charge per year = 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝒚𝒆𝒂𝒓𝒔 𝒐𝒇 𝒖𝒔𝒆
1. Remember your dollar
signs
$𝟐𝟎𝟎𝟎𝟎𝟎 − $𝟏𝟒𝟎𝟎𝟎𝟎 2. In this scenario, you
Depreciation charge per year = 𝟏 were given $140000 as
Depreciation charge per year = $𝟔𝟎𝟎𝟎𝟎 the NBV. This was the
reduced value for the
Note that you could’ve simply checked 30% of 200000 to
first year, so 1 is used as
determine if your answer using the SLM is correct.
the # of years

ii) Draw up a balance sheet extract for the van showing cost, accumulated depreciation
and net book value as at 30 April 2014. Note the use of the word extract.
ANSWER:

It’s important to
understand why your Farley Caterers
accumulated depreciation Balance Sheet Extract as at 30 April 2014
is $120000. The year Cost Acc. Net Book
started on May 01, 2013 Depreciation Value
and it had a NBV of $ $ $
$140000. Therefore in Fixed (Non-Current) Assets
2014, a further deduction Delivery Van 200000 (120000) 80000
of $60000 has to be made
for that year.

$60000 for 2013 + $60000

for 2014 = $120000 acc.
Depreciation.
 CSEC Scholars- Online
Principles of Accounts

iii) Calculate the depreciation charge on the industrial stove for the year ended 30
Aprll2014 using the reducing balance method. (Show working clearly.)

ANSWER:

Depreciation Charge

$
Cost 60000
Accumulated Depreciation (21600)
For 2013 Net Book Value 38400
Multiplied by Depreciation Charge (20%) 20%
Charge for 2014 7680

iv) Draw up the Provision for Depreciation Account for the industrial stove starting
with the amount of accumulated depreciation as at 01 May 2013 as balance brought
forward.

ANSWER:
Provision for Depreciation: Industrial Stove a/c
2013 $ 2013 $
01 May Balance b/d 21600
30 Apr Balance c/d 29280 30 Apr Income Statement 7680
29280 29280
2014
01 May Balance b/d 29280

THE END