Mavron pic owned the following motor vehicles as at 1 April 19X6:

Motor Date Cost Estimated Estimated Vehicle Acquired £ Residual Value f

Life

(years)

AAT 101 1 October 19X3 8,500 2,500 5 DJH 202 1 April 19X4 12,000 2,000 8 Mavron pic’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 19X7 the following occurred:

(a) On 30 June 19X6 AATlOl was traded in and replaced KGC303. The trade-in allowance was £5,000. KGC303 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.

KGC303 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 DJH202 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 ended 31 March 19X7.

(c) Reconstruct the Motor Vehicles Account and the Provision for Depreciation the year ended 31 March 19X7.

Show the necessary calculations clearly.

{Association of Accounting Technicians)