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Blue Haulage Ltd prepares its final accounts to 31 December each year - Leaving Cert Accounting - Question 2 - 2013
Question 2
Blue Haulage Ltd prepares its final accounts to 31 December each year. The company’s policy is to depreciate its vehicles at the rate of 15% of cost per annum, calcu... show full transcript
Worked Solution & Example Answer:Blue Haulage Ltd prepares its final accounts to 31 December each year - Leaving Cert Accounting - Question 2 - 2013
Step 1
The Vehicles Account.
Answer
The Vehicles Account records all vehicle transactions. The opening balance as of 01/01/2011 is €650,000 for Vehicle 1, €60,000 for Vehicle 2, and €700,000 for Vehicle 3, totalling €1,410,000.
| Date | Details | Amount |
|---|---|---|
| 01/01/2011 | Balance b/d | 1,410,000 |
| 01/09/2011 | Disposal | 650,000 |
| 01/09/2011 | Vehicle No. 1 | 65,000 |
| 31/12/2011 | Balance c/d | 291,000 |
| 01/01/2012 | Balance b/d | 291,000 |
| 01/04/2012 | Vehicle No. 3 | 70,000 |
| 31/12/2012 | Balance c/d | 71,125 |
Step 2
Step 3
Step 4
Why would a company charge depreciation in calculating profit?
Answer
Depreciation is charged to represent the reduction in value of assets over time. This process aligns with the matching principle in accounting, ensuring that expenses are matched with the revenues they generate. Without depreciation, profits may appear inflated, failing to account for the asset's wear and tear.
Step 5
Why would a company choose one method of depreciation over another?
Answer
Companies may choose different methods of depreciation based on the nature of the asset, its usage, and financial reporting goals. For example, the straight-line method offers consistent expense recognition, while the declining balance method reflects a higher expense in the initial years, aligning better with the asset’s usage. It's essential to maintain consistency in the chosen method for comparability in financial statements.