Question

5. Baako Ltd purchased motor vehicles as follows: 01/01/13: 1 unit, GH¢800,000; 01/07/13: 1 unit, GH¢400,000; 04/04/15: 1 unit, GH¢600,000. The company adopts a straight line method of depreciation at the rate of 10% per annum from the date of purchase. A separate account is prepared for provision for depreciation. On 30th June, 2014, the motor vehicle purchased on 1st July 2013 was sold for GH¢240,000.
You are required to prepare: (a) Motor Vehicle Account for the years 2013, 2014 and 2015; (b) Provision for Depreciation on Motor vehicle Account for the years 2013, 2014 and 2015; (c) Motor Vehicle Disposal Account.

Accepted Answer

(a) Motor Vehicle Account: 2013 — purchases of GH¢800,000 (1/1/13) and GH¢400,000 (1/7/13), balance c/d GH¢1,200,000. 2014 — balance b/d GH¢1,200,000, disposal (30/6/14) GH¢400,000, balance c/d GH¢800,000. 2015 — balance b/d GH¢800,000, purchase (4/4/15) GH¢600,000, balance c/d GH¢1,400,000.
(b) Provision for Depreciation Account: 2013 — depreciation charge GH¢100,000 (on 800,000×10%) + GH¢20,000 (on 400,000×10%×6/12) = GH¢120,000–160,000 combined balance c/d. 2014 — disposal-related depreciation removed GH¢160,000, further depreciation charged GH¢80,000, balance c/d GH¢200,000. 2015 — depreciation charged GH¢80,000 (existing) + GH¢45,000 (new asset, part year), balance c/d GH¢285,000.
(c) Motor Vehicle Disposal Account: Motor vehicle at cost GH¢400,000 less Provision for depreciation GH¢160,000 and Sale proceeds GH¢240,000, giving Loss on disposal of GH¢0 (proceeds exactly offset net book value) — workings should be checked against the exact depreciation schedule.

WAEC Accounting 2018 Theory — Question 5

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