QUESTION
The following information on machinery was extracted from R ltd assets register as at 31st Dec 2017
| Machine identification number |
M1 |
M2 |
M3 |
| Date of acquisition |
01-05-2013 |
01-09-2014 |
01-12-2015 |
| Cost (Shs.) |
1,520,000 |
1,995,000 |
2,945,000 |
| Accumulated depreciation as at 31.12.2016 |
855,000 |
760,000 |
2,945,000 |
Additional information:
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One ledger account is to maintained for all machinery Required; (i) Machinery account (7 Marks). (ii) Machinery disposal account (6 Marks). (iii) Machinery accumulated depreciation account (5 Marks). (iv) An extract from the statement of financial position as at 31st December 2017 (2 Marks).
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1. During the year ended 31st December 2017, the following transaction took place;
M1 was sold on 1st march 2017 for Shs. 285,000 in cash
M4 was bought on 1st April 2017, for Shs. 3,325,000 in cash. However on 15th August 2017, M4 was completely destroyed by fire and on 31st August 2017.R ltd received Shs. 2,850,000 as insurance compensation
On 1st September 2017, M5 was purchased in cash for Shs. 3,895,000
On 30th November 2017, R ltd decided to replace M3 with smaller but more efficient machinery M6. M3 was sold for Shs. 1,900,000 and M6 was bought for Shs. 2,470,000
2. The deprecation policy include the following :
Depreciation is to be provided on a straight line basis over a useful life of five years
Depreciation is chargeable for a full year in the year of purchase and no depreciation is chargeable in the year of sale or any other mode of disposal
No depreciation is chargeable if a machine is bought and disposed within the same year
3. One ledger account is to maintained for all machinery
Required;
(i) Machinery account (7 Marks).
(ii) Machinery disposal account (6 Marks).
(iii) Machinery accumulated depreciation account (5 Marks).
(iv) An extract from the statement of financial position as at 31st December 2017
(2 Marks).
ANSWER
MACHINERY ACCOUNT
Date | Particulars | Amount (Shs.) | Date | Particulars | Amount (Shs.)
——————————————————————————————————–
01-05-2013 | M1 | 1,520,000 | 01-03-2017 | M1 | (285,000)
01-09-2014 | M2 | 1,995,000 | 01-04-2017 | M4 | 3,325,000
01-12-2015 | M3 | 2,945,000 | 01-09-2017 | M5 | 3,895,000
| 30-11-2017 | M3 | (1,900,000)
——————————————————————————————————–
31-12-2017 | | 4,560,000 | | | 5,935,000
Explanation:
The Machinery account records the transactions related to the acquisition, sale, and replacement of machinery.
(i) On 1st May 2013, Machine M1 was acquired for Shs. 1,520,000.
(ii) On 1st September 2014, Machine M2 was acquired for Shs. 1,995,000.
(iii) On 1st December 2015, Machine M3 was acquired for Shs. 2,945,000.
(iv) On 1st March 2017, Machine M1 was sold for Shs. 285,000.
(v) On 1st April 2017, Machine M4 was acquired for Shs. 3,325,000.
(vi) On 15th August 2017, Machine M4 was destroyed by fire and on 31st August 2017, R Ltd received Shs. 2,850,000 as insurance compensation.
(vii) On 1st September 2017, Machine M5 was acquired for Shs. 3,895,000.
(viii) On 30th November 2017, Machine M3 was sold for Shs. 1,900,000, and Machine M6 was acquired for Shs. 2,470,000.
The Machinery account shows the total cost of machinery as Shs. 4,560,000 (acquisition cost of M2 and M3) and Shs. 5,935,000 (acquisition cost of M4, M5, and M6) at the end of the year.
MACHINERY DISPOSAL ACCOUNT
Date | Particulars | Amount (Shs.) | Date | Particulars | Amount (Shs.)
——————————————————————————————————–
01-03-2017 | M1 | (285,000) | | |
30-11-2017 | M3 | (1,900,000) | | |
——————————————————————————————————–
| | (2,185,000) | | |
Explanation:
The Machinery Disposal account records the transactions related to the sale of machinery.
(i) On 1st March 2017, Machine M1 was sold for Shs. 285,000.
(ii) On 30th November 2017, Machine M3 was sold for Shs. 1,900,000.
The Machinery Disposal account shows the total amount received from the sale of machinery as Shs
. 2,185,000.
MACHINERY ACCUMULATED DEPRECIATION ACCOUNT
Date | Particulars | Amount (Shs.) | Date | Particulars | Amount (Shs.)
——————————————————————————————————–
01-05-2013 | M1 | 855,000 | 30-11-2017 | M3 | 2,945,000
01-09-2014 | M2 | 760,000 | | |
——————————————————————————————————–
31-12-2017 | | 1,615,000 | | |
Explanation:
The Machinery Accumulated Depreciation account records the accumulated depreciation for each machine.
(i) As at 31st December 2016, Machine M1 had an accumulated depreciation of Shs. 855,000, and Machine M2 had an accumulated depreciation of Shs. 760,000.
(ii) Machine M3 had no accumulated depreciation as it was fully depreciated by the end of 2016 and was sold in November 2017.
The Machinery Accumulated Depreciation account shows the total accumulated depreciation of Shs. 1,615,000 at the end of the year.
EXTRACT FROM THE STATEMENT OF FINANCIAL POSITION AS AT 31ST DECEMBER 2017
Assets:
Machinery Shs. 4,560,000
Less: Accumulated Depreciation (Shs. 1,615,000)
————
Net Machinery Shs. 2,945,000
============
Explanation:
The extract from the Statement of Financial Position shows the net value of machinery after deducting the accumulated depreciation.
As at 31st December 2017, the machinery has a net value of Shs. 2,945,000.
