Accounting 0452 · IGCSE · Accounting for depreciation and disposal of non-current assets
Accounting for depreciation and disposal of non-current assets — practice question
A firm operates a fleet of delivery vehicles. Figures taken from the statement of financial position at 31 December 2022 show that the vehicles had an original cost of $440000 and accumulated depreciation of $270000.
On 1 April 2023, the business acquired two extra vehicles on credit from L Autos for a combined cost of $70000.
The business sold one vehicle on 30 November 2023. This vehicle had originally cost $28000 and had accumulated depreciation of $16800. It was sold to a local garage for $10500, paid by bank transfer.
Depreciation is provided for using the straight-line method at 20% per annum.
A full year’s depreciation is charged in the year of purchase.
No depreciation is charged in the year of disposal.
(a)[2]
Calculate the depreciation charge for the year ended 31 December 2023.
(b)[10]
Prepare the company’s ledger accounts for Delivery vehicles, Provision for depreciation and Disposal of delivery vehicles for the year ended 31 December 2023. Balance them and carry the balances down on 1 January 2024.
(c)[5]
Advise the owner of the company on whether he should go ahead with this change. Support your view by giving two advantages and two disadvantages of switching to the reducing balance method.
(d)[3]
Complete the table below by putting a tick (✓) in the relevant column to show the most suitable depreciation method for each non-current asset.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.