ASSIGNMENT

INTERMEDIATE ACCOUNTING II (ECON 223)
ASSIGNMENT DUE DATE: 25TH July , 2022

Answer ALL Questions
1. (a) Charging the whole cost of asset in the first year itself is not correct. Why?
(b) Although, written down value method is based upon a more realistic
assumption, it suffers from some limitations. Give any three such limitations.
(c) On 1st April 2018, merchant purchased furniture costing Le55,000. It is
estimated that its life is 10 years at the end of which it will be sold Le5,000.
Additions are made on 1st April 2019 and 1st October 2021 to the value of
Le9,500 and Le8,400 (Residual values Le500 and Le400 respectively). Show
the Furniture Account for the first four years, if Depreciation is written off
according to the Straight Line Method.
2. A friend of the family believes that depreciation provides him with a reserve to
purchase new assets. His secretary has blown up his computer, but he knows he
has the funds to replace it in the accumulated depreciation account. You know
he is wrong and have grown tired of listening to him going on about it, but he
won't listen to what you have to say. You decide to put him out of his misery by
writing a letter to him about it that he may actually read before he realises that it
is telling him things he does not want to hear.
Write him a letter, using fictitious names and addresses, which defines
depreciation and explains why his view is incorrect.
3. On 1 April 2013 a business purchased a machine costing Le560,000. The

machine can be used for a total of 100,000 hours over an estimated life of 48
months. At the end of that time the machine is expected to have a trade-in value
of Le60,000.
The financial year of the business ends on 31 December each year. It is
expected that the machine will be used for:
20,000 hours during the financial year ending 31 December 2013
You are required to:
1
a) Calculate the annual depreciation charges on the machine on each of the
following bases for each of the financial years ending on 31 December 2013,
2014, 2015, 2016 and 2017:
(i) the straight line method applied on a month for month basis,
(ii)the diminishing balance method at 40% per annum applied on a full year
basis, and
(iii) the units of output method.
b) Suppose that during the financial year ended 31 December 2014 the machine
was used for only 1,500 hours before being sold for Le80,000 on 30 June.
Assuming that the business has chosen to apply the straight line method on a
month for month basis, show the following accounts for 2014 only the:
(i) Machinery account,
(ii) Provision for Depreciation - Machinery account, and
(iii) Machinery Disposals account.
4. A business buys a non-current asset for Le750,000 on 1st January, 2019. The
business estimates that the asset will be used for five years. After exactly two
and a half years, however, the asset is suddenly sold for Le375,000. The
business always provides a full year's depreciation in the year of purchase and
no depreciation in the year of disposal
You are required to:
(a) Write up the relevant accounts (including disposal account but not profit and
loss account) for each of the years 2019, 2020, 2021:
(i) Using the straight line depreciation method (assume 20% pa);
(ii) Using the reducing balance depreciation method (assume 40% pa).
(b)(i) What is the purpose of depreciation? In what circumstances would each of
the two methods you have used be preferable?
(ii) What is the meaning of the net figure for the non-current asset in the statement
of financial position at the end of 2020?
(c) If the asset was bought at the beginning of 2019, but was not used at all until
2020 (and it is confidently anticipated to last until 2024), state under each method
the appropriate depreciation charge in 2019, and briefly justify your answer.
5. (a) A firm purchased on 1st January, 2010 a second-hand machinery for

Le36,000 and spent Le4,000 on its installation.
On 1st July in the same year, another machinery costing Le20,000 was
purchased. On 1st July, 2012 machinery brought on 1st January, 2010 was sold
2
for Le12,000 and a new machine purchased for Le64,000 on the same date.
Depreciation is provided annually on 31st December @ 10% per annum on the
written down value method. Show the machinery account from 2010 to 2012.
(b) A firm purchased on 1st April 2015 certain machinery for Le582,000 and
spent Le18,000 on its installation. On 1st October 2015, additional machinery
costing Le200,000 was purchased. On 1st October 2017, the machinery
purchased on 1st April 2015 was auctioned for Le286,000 plus CGST and
SGST @ 6% each and new machinery for Le4,00,000, plus IGST @ 12% was
purchased on the same date. Depreciation was provided annually on 31st March
at the rate of 10% on the Written Down Value Method. Prepare the Machinery
Account for the three years ended 31st March 2018.
6. The information below was extracted from the books of Jeneba Ltd.
Assets Date at Cost Price Date of Selling Price

Purchase Le Disposal Le
Machine A 1/2/2016 969,600 30/6/2019 640,000
Machine B 1/1/2018 1,294,400 30/9/2020 580,000
Machine C 1/10/2020 1,132,000 - -
Additional information:
A full year’s depreciation is charged in the year of acquisition. In the year of
disposal no depreciation is charged.
The company’s financial year ends on 31st July each year. Depreciation is
1
charged at the rate of 12 2 % per annum.
All assets were bought and sold for cash.
You are required to prepare the following accounts up to the year ended 31st
July 2021
(a) Machine Account
(b) Provision for Depreciation on Equipment Account.
(c) Machine Disposal Account

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INTERMEDIATE ACCOUNTING II (ECON 223)

ASSIGNMENT DUE DATE: 25TH July , 2022

3. On 1 April 2013 a business purchased a machine costing Le560,000. The

5. (a) A firm purchased on 1st January, 2010 a second-hand machinery for

Assets Date at Cost Price Date of Selling Price

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