1(a) Identify the four factors which cause fixed assets to depreciate.
(b) Which one of these factors is the most important for each of the following assets?
(i) a gold mine,
(ii) a lorry,
(iii) a 50 year lease on a building,
(iv) land,
(v) a ship used to ferry passengers and vehicles across a river following the building of a
bridge across the river,
(vi
) a franchise to market a new computer software package in a certain country.
(c) The financial year of Ochre Ltd will end on 31 December 2006. At 1 January 2006 the company
had in use equipment with a total accumulated cost of £135,620 which had been depreciated
by a total of £81,374. During the year ended 31 December 2006 Ochre Ltd purchased new
equipment costing £47,800 and sold off equipment which had originally cost £36,000, and
which had been depreciated by £28,224, for £5,700. No further purchases or sales of equipment
are planned for December. The policy of the company is to depreciate equipment at 40% using
the diminishing balance method. A full year’s depreciation is provided for on all equipment in
use by the company at the end of each year.
Required:
Show the following ledger accounts for the year ended 31 December 2006:
(i
) the equipment account;
(ii
) the provision for depreciation on equipment account;Authors’ Note
(iii
) the assets disposals account.
(Association of Accounting Technicians)
Authors’ Note
: this is the accumulated provision for depreciation account.