Page 7 - ks011-POA Anwer Key
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21  On 1 April 20x4, Jesse purchased a lab machine for use in his business. The list price of the machine was
               $20 000 before a 10% trade discount. At the same time, Jesse paid the following additional costs relating
               to the machine:

                          Delivery                                         $900
                          Insurance premium for the year ending 31 March 20x5  $1680
                          Installation                                     $1600

               On 30 Oct 20x6, Jesse sold the machine to Creativity Ltd on credit for $8,500. On the same day, Jesse
               bought a smaller machine by cheque for $8 000.
               Jesse depreciates the lab machine using the reducing balance method at 20% per annum. A full year’s
               depreciation is provided in the year of purchase but no depreciation in the year of sale. Jesse’s financial
               year end is 31 December.
               REQUIRED
               (a)  Calculate cost of lab machine to be recorded in the books.
               (b)  Calculate the depreciation for lab machine for the year ended 31 March 20x5, 20x6 and 20x7. Show
                    all workings.
               (c)  Prepare the journal entry to record the depreciation for lab machine on 31 March 20x6.
               (d)  Prepare the journal entries to record the sale of lab machine, including the closing entry.
               (e)  Explain the term ‘depreciation’.



           22  Wanda Ltd bought five laptops each costing $2 000 on 1 July 20x4.
               The following balances were extracted from Wanda’s books as at 1 July 20x5:

                             Accumulated depreciation for office equipment  $2000
               On 31 December 20x5, Wanda sold one of the laptops for $1 500 and received a cheque as payment. The
               next day, Wanda bought a new laptop costing $2 300 on credit from Nell Ltd.
               Additional information:
               Wanda’s accounting policy is to depreciate office equipment at 20% using reducing balance method. A full
               year’s depreciation is charged in the year of purchase and no depreciation is charge in the year of sale.
               REQUIRED

               (a)  Prepare the journal entries to record the sale of the laptop, including the closing entry.
               (b)  Calculate the depreciation of office equipment to be recorded for the year ended 30 June 20x6.
               (c)  Prepare extracts of the statement of financial performance for the year ended 30 June 20x6, showing
                    only the relevant sections
               (d)  Prepare extracts of the statement of financial position as at 30 June 20x6, showing only the non-
                    current asset portion.                                                              Chapter 11
               (e)  State two causes of depreciation.











            © GLM                                      Conceptual Learning and Understanding Principles of Accounts  183
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