The following information was extracted from the financial records including the asset register for Fit Line Gym for the year ended 31 December 2020: Property, plant & equipment: Balances at 1 January 2020 Buildings R Gym Equip- ment - R Furniture & Fittings - R Cost Accumulated depreciation 550 000 (27 500) 275 000 (140 000) 88 000 (23 500) Additional information: 1. Accounting policies with regard to depreciation of property, plant and equipment: 3 1.1 Buildings are depreciated at 2% per year on the fixed instalment method. 1.2 Gym equipment is depreciated at 20% per year using the reducing balance method. 1.3 Furniture and fittings are depreciated on the fixed instalment method over an estimated useful life of 4 years. 2. The following transactions which are not included in the above balances, took place during the financial year ended 31 December 2020: 2.1 Due to increased membership, the owner decided to extend the building and install new fixtures and fittings. Extension to the building was completed at a cost of R60 000. The extension was ready for use on 1 July 2020. However, members only began using the new extension from 1 August 2020. 2.2 Fixtures and fittings were installed for a total cost of R20 000. Fixtures were also ready for use on 1 July 2020 but put to use on 1 August 2020. 2.3 On 30 September 2020 old gym equipment was traded-in for R45 000 for new electronic equipment costing R121 000. The new equipment was installed and tested by the supplier at an additional cost of R9 000. The old equipment that was traded-in was bought on 1 January 2019 for a capitalised cost of R66 000. The difference between the trade-value and the cost of the new electronic equipment was settled by an Electronic Funds Transfer (EFT). 3. No other transactions for the purchase and /or sale of property, plant and equipment took place during the current financial year. Required: Prepare the note for Property, plant and equipment as it would appear in the financial statements of Fit Line Gym for the year ended 31 December 2020 incompliance with International Financial Reporting Standards suitable for this type of business entity. Show all workings. Round off all calculations to the nearest Rand. You may ignore the total column
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.
The following information was extracted from the financial records including
the asset register for Fit Line Gym for the year ended 31 December 2020:
Property, plant & equipment:
Balances at 1 January 2020
Buildings
R
Gym Equip-
ment - R
Furniture &
Fittings - R
Cost
Accumulated
550 000
(27 500)
275 000
(140 000)
88 000
(23 500)
Additional information:
1. Accounting policies with regard to depreciation of property, plant and equipment:
3
1.1 Buildings are depreciated at 2% per year on the fixed instalment method.
1.2 Gym equipment is depreciated at 20% per year using the reducing balance
method.
1.3 Furniture and fittings are depreciated on the fixed instalment method over
an estimated useful life of 4 years.
2. The following transactions which are not included in the above balances, took
place during the financial year ended 31 December 2020:
2.1 Due to increased membership, the owner decided to extend the building and
install new fixtures and fittings. Extension to the building was completed at a
cost of R60 000. The extension was ready for use on 1 July 2020. However,
members only began using the new extension from 1 August 2020.
2.2 Fixtures and fittings were installed for a total cost of R20 000. Fixtures were
also ready for use on 1 July 2020 but put to use on 1 August 2020.
2.3 On 30 September 2020 old gym equipment was traded-in for R45 000 for new
electronic equipment costing R121 000. The new equipment was installed
and tested by the supplier at an additional cost of R9 000.
The old equipment that was traded-in was bought on 1 January 2019 for a
capitalised cost of R66 000. The difference between the trade-value and
the cost of the new electronic equipment was settled by an Electronic Funds
Transfer (EFT).
3. No other transactions for the purchase and /or sale of property, plant and
equipment took place during the current financial year.
Required:
Prepare the note for Property, plant and equipment as it would appear in the
financial statements of Fit Line Gym for the year ended 31 December 2020 incompliance with International Financial Reporting Standards suitable for this type of business entity. Show all workings. Round off all calculations to the nearest Rand.
You may ignore the total column.
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