O-LevelAccountingAccounting procedures7707/21 · May/June 2016 · Q220 Marks

The following balances were recorded in the books of Sofea on 1 March 2015. Motor vehicles account (at cost) $ 50000 Motor vehicles – provision for depreciation account 18400 Additional information 1 On 31 May 2015 a motor vehicle costing $16000 and with an accumulated depreciation of $7000 was sold for $8400. 2 On 30 June 2015 a motor vehicle costing $20000 was purchased on credit. 3 The depreciation policy of Sofea is as follows: Motor vehicles are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method. A full year's depreciation is charged in the year of purchase. No depreciation is charged in the year of sale. REQUIRED Sofea provided the following information about her trade receivables. 1 On 28 February 2016 Wade Designs, which owed Sofea $5100, was declared bankrupt. A cheque for $1800 was received. The balance of the debt was irrecoverable. 2 On 29 February 2016 the remaining trade receivables were: Age of debt (Months) Amount $ Provision for doubtful debts percentage (%) Up to 1 month 18000 2 1 to 3 months 12200 5 3 to 6 months 3300 10 Over 6 months 2200 20 On 1 March 2015 the provision for doubtful debts account was $2050.

(a)State the meaning of the accounting term depreciation.[2]
(b)Identify by ticking the appropriate box (✔) whether each statement about depreciation is true or false. The first one has been completed as an example. Statement True False There is only one method of charging depreciation. Depreciation is the cash set aside for non-current asset replacement. Depreciation is an application of the going concern concept.[2]
(c)(i)profit or loss on the sale of the motor vehicle on 31 May 2015.[1]
(c)(ii)motor vehicles depreciation charge for the year ended 29 February 2016.[2]
(d)Prepare the motor vehicles provision for depreciation account for the year ended 29 February 2016. Balance the account and bring down the balance on 1 March 2016.[5]
(e)Prepare the general journal to record the entries for Wade Designs on 28 February 2016. A narrative is not required.[3]
(f)Calculate the provision for doubtful debts on 29 February 2016.[1]
(g)Prepare the provision for doubtful debts account for the year ended 29 February 2016. Balance the account and bring down the balance on 1 March 2016.[3]
(h)Name one accounting concept applied by Sofea in providing for doubtful debts.[1]

Mark scheme

Marking points from the official mark scheme (May/June 2016). The mark or mark type is shown in brackets.

[2] (a) Depreciation is the loss in value of a non-current asset (1) over its working life / in the accounting period. (1)
[2] (b) Statement 1: False (✔); Statement 2: False (✔); Statement 3: True (✔) (1)
[1] (c)(i) Loss on sale of vehicle $16000 - $7000 = $9000 less receipt $8400 = $600 loss (1)
[2] (c)(ii) Depreciation on remaining assets: ($50000-$16000)-($18400-$7000) x 25% = $22600 x 25% = $5650 (1); Depreciation on newly purchased asset: $20000 x 25% = $5000 (1); Total depreciation: $5650 + $5000 = $10650
[5] (d) Motor vehicles – provision for depreciation account: 2015 May 31 Disposal 7000 (1); 2016 Feb 29 Balance c/d 22050; Total 29050; 2015 Mar 1 Balance b/d 18400 (1); 2016 Feb 29 Income statement / Depreciation 10650 (1of); Total 29050; 2016 Mar 1 Balance b/d 22050 (1of)
[3] (e) General Journal: Dr Bank $1800 (1); Dr Bad debts $3300 (1); Cr Wade Designs / Sales ledger control / Trade receivables $5100 (1)
[1] (f) Provision for doubtful debts on 29 February 2016: Up to 1 month: $18000 x 2% = $360; 1 to 3 months: $12200 x 5% = $610; 3 to 6 months: $3300 x 10% = $330; Over 6 months: $2200 x 20% = $440; Total: $1740 (1)
[3] (g) Provision for doubtful debts account: 2016 Feb 29 Income Statement 310 (1of); 2016 Feb 29 Balance c/d 1740; Total 2050; 2015 Mar 1 Balance b/d 2050 (1); Total 2050; 2016 Mar 1 Balance b/d 1740 (1of)
[1] (h) Prudence / matching / accruals (1)

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