1
Mavron plc owned the following motor vehicles as at 1 April 2006:
Motor Date Cost Estimated Estimated
Vehicle Acquired
£
Residual Value Life (years)
£
AAT 101 1 October 2003 8,500 2,500 5
DJH 202 1 April 2004 12,000 2,000 8
Mavron plc’s policy is to provide at the end of each financial year depreciation using the straight
line method applied on a month-by-month basis on all motor vehicles used during the year.
During the financial year ended 31 March 2007 the following occurred:
(a) On 30 June 2006 AAT 101 was traded in and replaced by KGC 303. The trade-in allowance was
£5,000. KGC 303 cost £15,000 and the balance due (after deducting the trade-in allowance) was
paid partly in cash and partly by a loan of £6,000 from Pinot Finance. KGC 303 is expected to
have a residual value of £4,000 after an estimated economic life of 5 years.
(b) The estimated remaining economic life of DJH 202 was reduced from 6 years to 4 years with no
change in the estimated residual value.
Required:
(a) Show any journal entries necessary to give effect to the above.
(b) Show the journal entry necessary to record depreciation on motor vehicles for the year ended
31 March 2007.
(c) Reconstruct the motor vehicles account and the provision for depreciation account for the year
ended 31 March 2007.*
Show the necessary calculations clearly.
(Association of Accounting Technicians)
*Authors’ Note: this is the accumulated provision for depreciation account.