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Depreciation of Fixed Assets Ace Haulage Ltd - Leaving Cert Accounting - Question 3 - 2005
Question 3
Depreciation of Fixed Assets Ace Haulage Ltd. prepares its final accounts to 31st December each year. The company's policy is to depreciate its vehicles at the rate... show full transcript
Worked Solution & Example Answer:Depreciation of Fixed Assets Ace Haulage Ltd - Leaving Cert Accounting - Question 3 - 2005
Step 1
The Vehicles Account
Answer
To prepare the Vehicles Account for the years 2003 and 2004, list the opening balance, purchases, disposals, and closing balance for each year.
2003
| Date | Details | Amount |
|---|---|---|
| 01/01/2003 | Balance b/d | €258,000 |
| 01/05/2003 | Disposal | €80,000 |
| 31/12/2003 | Balance c/d | €268,000 |
2004
| Date | Details | Amount |
|---|---|---|
| 01/01/2004 | Balance b/d | €268,000 |
| 01/07/2004 | Disposal | €273,000 |
| 31/12/2004 | Balance c/d | €363,000 |
Step 2
Step 3
The Provision for Depreciation Account
Answer
This account reflects the depreciation expenses related to the vehicles owned.
2003
Vehicle No. 1
- Cost: €70,000
- Depreciation: 15% of €70,000 = €10,500
Total Depreciation for 2003
| Vehicle | Depreciation |
|---|---|
| Vehicle No. 1 | €10,500 |
| Vehicle No. 2 | €12,000 |
| Vehicle No. 3 | €13,000 |
| Total | €39,500 |
2004
Vehicle No. 1
- Depreciation for 2004 (15%): €12,250 for the first two years then 15%. Total method for depreciation will vary based on asset utility.
Step 4
What factors are taken into account in arriving at the annual depreciation charge
Answer
Factors affecting annual depreciation include:
- Cost of the asset: The initial purchase price of the vehicle.
- Estimated useful life: The period over which the asset is expected to be used.
- Scrap value: The estimated residual value at the end of its useful life.
- Method of depreciation: The technique used (straight-line or reducing balance) to allocate the asset's cost over time.