8.3 On 1 January 199X a business purchased a Minilab to process and print films. The Minilab...

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8.3 On 1 January 199X a business purchased a Minilab to process and print films. The Minilab costs £28,000 and has an estimated economic life of 4 years, after which it will have no residual value. The financial year of the business ends on 31 December.

It is estimated that the output from the Minilab will be:

Films processed Year 1 40,000 Year 2 50,000 Year 3 55,000 Year 4 55,000 200,000

(a) Calculate the annual depreciation charges on the Minilab for each of the four years on each of the following bases:
(i) The straight-line basis.
(ii) The diminishing balance method at 55 per cent per annum.
(iii) The units of output method.

(b) Suppose that the business sold the Minilab half way through the third year for £10,000 and that depreciation had been provided for using the straight-line method applied on a month-for-month basis.
Reconstruct the following accounts for the third year only:
(i) The Minilab account.
(ii) The provision for depreciation – Minilab account.
(iii) The assets disposals account.
(10 marks)
(Total 20 marks)
(AAT, Basic Accounting, December 1990)

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Introduction To Accounting

ISBN: 9780761970378

3rd Edition

Authors: Pru Marriott, J R Edwards, Howard J Mellett

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