September 2021
Philip Dunn tests your knowledge of this important concept.
Q1: Which International Financial Reporting Standard deals with tangible assets that are depreciated over their useful economic life?
Karl Heyes is an agricultural contractor operating in North Yorkshire. He commenced in business on 1 January 2016 and purchased plant and equipment for £180,000 including VAT, and the business was to be VAT registered. He has adopted a policy of depreciating such assets at a rate of 20% straight line basis and depreciates the assets in the year of purchase but not in the year of sale.
Q2: What would be the debit balance on the plant and equipment at cost account on the 1 January 2019?
Q3: What would be the credit balance on the provision for depreciation plant and equipment account on the 1 January 2019?
On 1 January 2019, he disposes of one item of plant, purchased on 1 January 2016, that had cost £16,000 net of VAT, and issues a sales invoice for the disposal for £9,000 including VAT.
Q4: What amount would need to be debited to a disposal account?
Q5: What amount would need to be credited to the plant and equipment at cost account for the disposal?
Q6: What amount would need to be debited to the provision for depreciation on plant and equipment account for the disposal?
Q7: What amount would need to be credited to the disposal account for the cumulative depreciation to date on the asset disposed?
Q8: To which side of the disposal account would the proceeds of the sale of the asset be posted?
Q9: What was the profit or loss on the disposal of the asset?
Q10: What would be the debit balance on the plant and equipment at cost account immediately following the disposal of the asset?
Q11: What would be the credit balance on the provision for depreciation for plant and equipment account following the disposal?
On 1 January 2019, £72,000 including VAT was incurred on the purchase of additional plant and equipment.
Q12: What would be the total amount of depreciation charged for year ended 31 December 2019?
Q13: What would be the credit balance on the provision for depreciation on plant and equipment account at 31 December 2019?
Q14: What be the carrying value of the plant and equipment at cost account at 31 December 2019?
On 1 January 2020, a commercial vehicle is purchased and a summary of the invoice from the supplier showed:
• Cost of the vehicle £25,200 including VAT
• Fitting of interior racking £720 including VAT
• Fitting roof racks £480 including VAT
• Road fund licence £420
• Painting of livery on side of vehicle £960 including VAT
• Insurance of vehicle £510
• Annual service charge £48 per month including VAT.
Q15: What amount would be capitalised on the purchase of the vehicle?
• Dr Philip E Dunn is a freelance author and technical editor for Kaplan and Osborne Books
ANSWERS
Q1: IAS16 Property, Plant and Equipment
Q2: £150,000
Q3: £90,000
Q4: £16,000
Q5: £16,600
Q6: £9,600
Q7: £9,600
Q8: Credit
Q9: £1,100 Profit
Q10: £134,00
Q11: £80,400
Q12: £38,800
Q13: £119,200
Q14: £74,800
Q15: £22,800
