Question

Section B (Bookkeeping Practice) - 7. Marks Ltd makes accounts to 31st December annually. The business acquired a generating machine for #120,694 on 1st January 2010 with an estimated life span of twelve years and scrap value of #694. Required: (a) Calculate the annual depreciation charge using the straight line method; (b) Prepare for the first three years: (i) The Machine Account; (ii) Provision for depreciation on Machine Account; (iii) Balance Sheet extract.

Accepted Answer

(a) Annual depreciation (straight line) = (Cost - Scrap value) / Estimated life span = (#120,694 - #694) / 12 = #10,000 per year.

(b)(i) MACHINE ACCOUNT for the first three years (2010-2012)
1/1/10 Bank #120,694 -> 31/12/10 Balance c/d #120,694
1/1/11 Balance b/d #120,694 -> 31/12/11 Balance c/d #120,694
1/1/12 Balance b/d #120,694 -> 31/12/12 Balance c/d #120,694
1/1/13 Balance b/d #120,694 (the machine remains at cost since depreciation is accumulated in a separate provision account)

(ii) PROVISION FOR DEPRECIATION ON MACHINE ACCOUNT
31/12/10: Balance c/d #10,000 -> Profit and loss account #10,000
31/12/11: Balance c/d #20,000 -> 1/1/11 Balance b/d #10,000; 31/12/11 Profit and loss account #10,000 (Total #20,000)
31/12/12: Balance c/d #30,000 -> 1/1/12 Balance b/d #20,000; 31/12/12 Profit and loss account #10,000 (Total #30,000)
1/1/13 Balance b/d #30,000 (accumulated depreciation after 3 years)

(iii) BALANCE SHEET EXTRACT
31/12/10: Machine #120,694; Less: Depreciation #10,000; Net book value #110,694.
31/12/11: Machine #120,694; Less: Accumulated depreciation #20,000; Net book value #100,694.
31/12/12: Machine #120,694; Less: Accumulated depreciation #30,000; Net book value #90,694.

WAEC Book Keeping 2023 Theory — Question 12

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