(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.