Question
(a) The purpose of depreciation is not to provide any fund to replace a non-current asset, rather to allocate the cost of that asset to
(a) The purpose of depreciation is not to provide any fund to replace a non-current asset, rather to allocate the cost of that asset to expense over its useful life. Do you agree with this statement? If yes, explain your answer using appropriate accounting concepts or principles. (5)
(b) The following shows the balance of non-current assets of Austin Technologies as at 31 December 2020.
Name of assets Cost ($) Accumulated depreciation Net book value
Building 200,000 60,000 140,000
Equipment 100,000 40,000 60,000
Motor vehicles 60,000 30,000 30,000
The following events occurred during the year ended 31 December 2021
1 May Sold an equipment for $5000 cash. The equipment was purchased on 1 January 2018 for $30,000. 30 June Purchased an equipment for $40,000.
15 July Incurred $50,000 for extending one floor of the building.
20
August Bought a motor vehicle which cost $20,000. Depreciation rate: Building 2%, equipment 20% and motor vehicles 25%. Prepare a note relating to the non-current assets that should be provided with balance sheet at 31 December 2021. You will follow the standard format of this note which will show the costs, accumulated depreciation and net book value at the beginning and end of the year of 2021. You will show all working relating to depreciation
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