Milestone company maintains its non-current assets at cost. A provision for depreciation account is used for each type of asset. The company depreciates machinery at the rate of 15% per year while fixtures are depreciated at a rate of 10% using the reducing balance method. Depreciation is to be calculated on assets in existence at the end of each year, giving a full year’s depreciation even if the asset was bought in the course of the year. The following transactions in assets have taken place: 2018 January 1: Bought machinery €3,000, fixtures €500 2018 July 1: Bought fixtures €440 2019 October 1: Bought machinery €4,000 2019 December 1: Bought fixtures €280 The financial year end of the company is 31st December. You are Required to show: (a) Machinery account (b) The fixtures account (c) The two-separate provision for depreciation accounts (d) What are the two most important reasons why non-currents assets are depreciated? (e) Assuming this question required you to calculate depreciation using straight line method, clearly explain how you will determine depreciation for each year. Comment on whether the depreciation calculated will vary between the two methods
Milestone company maintains its non-current assets at cost. A provision for depreciation account is used for each type of asset. The company depreciates machinery at the rate of 15% per year while fixtures are depreciated at a rate of 10% using the reducing balance method. Depreciation is to be calculated on assets in existence at the end of each year, giving a full year’s depreciation even if the asset was bought in the course of the year. The following transactions in assets have taken place: 2018 January 1: Bought machinery €3,000, fixtures €500 2018 July 1: Bought fixtures €440 2019 October 1: Bought machinery €4,000 2019 December 1: Bought fixtures €280 The financial year end of the company is 31st December. You are Required to show: (a) Machinery account (b) The fixtures account (c) The two-separate provision for depreciation accounts (d) What are the two most important reasons why non-currents assets are depreciated? (e) Assuming this question required you to calculate depreciation using straight line method, clearly explain how you will determine depreciation for each year. Comment on whether the depreciation calculated will vary between the two methods
Chapter11: Long-term Assets
Section: Chapter Questions
Problem 11PA: Montezuma Inc. purchases a delivery truck for $15,000. The truck has a salvage value of $3,000 and...
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Milestone company maintains its non-current assets at cost. A provision for depreciation account is used for each type of asset. The company depreciates machinery at the rate of 15% per year while fixtures are depreciated at a rate of 10% using the reducing balance method . Depreciation is to be calculated on assets in existence at the end of each year, giving a full year’s depreciation even if the asset was bought in the course of the year. The following transactions in assets have taken place:
2018 January 1: Bought machinery €3,000, fixtures €500 2018 July 1: Bought fixtures €440
2019 October 1: Bought machinery €4,000
2019 December 1: Bought fixtures €280
The financial year end of the company is 31st December.
You are Required to show:
(a) Machinery account
(b) The fixtures account
(c) The two-separate provision for depreciation accounts
(d) What are the two most important reasons why non-currents assets are depreciated?
(e) Assuming this question required you to calculate depreciation using straight line method ,
clearly explain how you will determine depreciation for each year. Comment on whether the depreciation calculated will vary between the two methods
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