Question

Mr Bendwood acquired the following Vehicles for his business:

Vehicle # 356 on January 14, 1996 $2,100,000
# 258 on January 31, 1997 3,600,000
# 124 on May 5, 1997 2,400,000
# 347 on October 19, 1997 5,400,000
# 546 on February 24, 1998 2,500,000
Vehicle # 258 was sold on September 1998 for $2,000,000, while vehicle # 356
was sold on December 20, 1998 for $1,500,000.
The financial year ends on 31st December, and the method of depreciation is the
straight-line basis over five years assuming a nil scrap value. The policy is that a
full year’s depreciation in the year of purchase is to be made, but there is to be no
depreciation in the year of disposal.
Required: Write up the asset account (Motor Vehicles) from 1996 to 31st December
1998, depreciation account, from 1996 to 31st December 1998, and the disposal
account in 1998.

Answer 1

To write up the asset account (Motor Vehicles) from 1996 to 31st December 1998, we need to record the acquisitions and disposals of vehicles during this period. The asset account will show the original cost of each vehicle, any depreciation expenses, and the net book value at the end of each year.

Here is the asset account for Motor Vehicles from 1996 to 31st December 1998:

Year 1996:
Vehicle #356 - Acquisition: $2,100,000
Total: $2,100,000

Year 1997:
Vehicle #258 - Acquisition: $3,600,000
Vehicle #124 - Acquisition: $2,400,000
Vehicle #347 - Acquisition: $5,400,000
Total: $11,400,000

Year 1998:
Vehicle #546 - Acquisition: $2,500,000
Vehicle #258 - Disposal: $2,000,000
Vehicle #356 - Disposal: $1,500,000
Total acquisitions: $2,500,000
Total disposals: $3,500,000

Net Book Value as of 31st December 1998: $9,100,000 ($11,400,000 - $3,500,000)

Next, let's write up the depreciation account from 1996 to 31st December 1998. Since the straight-line method is used and a full year's depreciation is made in the year of purchase, we'll calculate the depreciation expense for each year based on the original cost of the vehicles.

Depreciation Account from 1996 to 31st December 1998:

Year 1996:
Vehicle #356 - Depreciation Expense: $420,000 ([$2,100,000 / 5] x 1 year)
Total: $420,000

Year 1997:
Vehicle #258 - Depreciation Expense: $720,000 ([$3,600,000 / 5] x 1 year)
Vehicle #124 - Depreciation Expense: $480,000 ([$2,400,000 / 5] x 1 year)
Vehicle #347 - Depreciation Expense: $900,000 ([$5,400,000 / 5] x 1 year)
Total: $2,100,000

Year 1998:
No depreciation since there are no acquisitions

Finally, let's write up the disposal account for 1998. Since there is no depreciation in the year of disposal, the disposal account will only record the proceeds from the sale of the vehicles.

Disposal Account for 1998:

Vehicle #258 - Proceeds from Sale: $2,000,000
Vehicle #356 - Proceeds from Sale: $1,500,000
Total: $3,500,000

Please note that the asset account, depreciation account, and disposal account should be presented in the format required by your instructor or the accounting standards in your region. This is a simplified example, but it should give you an understanding of how to write up these accounts based on the given information.