Accounting 0452 · IGCSE · Accounting for depreciation and disposal of non-current assets
Accounting for depreciation and disposal of non-current assets — practice question
Simon runs a business that sells office stationery. On 1 January 2019, he owned two delivery vehicles that had been bought on 1 January 2018.
Delivery vehicle A cost $30 000 and delivery vehicle B cost $25 000.
Simon applies the straight-line method to depreciate the delivery vehicles. A rate of 20% per annum on cost is used, with the rate applied for every part of the year that the delivery vehicles are owned.
Because business declined, delivery vehicle B was sold on 31 March 2020 and a cheque for $10 350 was received. Delivery vehicle A was still being used at the end of 2020.
(a)[15]
Prepare the delivery vehicles account, the provision for depreciation of delivery vehicles account, and the delivery vehicles disposal account for the years ended 31 December 2019 and 2020. Balance each account at the end of the relevant year where needed.
(b)[5]
Advise Simon whether he should use the reducing balance method of depreciation for his delivery vehicles. Justify your answer.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.