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Part 4 l Adjustments for financial statements

Review questions
27.1 A company starts in business on 1 January 20X5. You are to write up the vans account and
the provision for depreciation account for the year ended 31 December 20X5 from the information
given below. Depreciation is at the rate of 25 per cent per annum, using the basis that one com-
plete month’s ownership needs one month’s depreciation.
20X5 Bought two vans for £6,900 each on 1 January
Bought one van for £7,200 on 1 August

27.2 A company starts in business on 1 January 20X3, the financial year end being 31 December.
You are to show:
(a) The machinery account.
(b) The provision for depreciation account.
(c) The balance sheet extracts for each of the years 20X3, 20X4, 20X5, 20X6.
The machinery bought was:
20X3 1 January 1 machine costing £1,400
20X4 1 July 2 machines costing £600 each
1 October 1 machine costing £1,000
20X6 1 April 1 machine costing £400
Depreciation is over ten years, using the straight line method, machines being depreciated for the
proportion of the year that they are owned.

27.3A A company maintains its fixed assets at cost. Depreciation provision accounts, one for
each type of asset, are in use. Machinery is to be depreciated at the rate of 15% per annum, and
fixtures at the rate of 5% per annum, using the reducing balance method. Depreciation is to be
calculated on assets in existence at the end of each year, giving a full year’s depreciation even
though the asset was bought part of the way through the year. The following transactions in
assets have taken place:
20X5 1 January Bought machinery £2,800, fixtures £290
1 July Bought fixtures £620
20X6 1 October Bought machinery £3,500
1 December Bought fixtures £130
The financial year end of the business is 31 December.
You are to show:
(a) The machinery account.
(b) The fixtures account.
(c) The two separate provision for depreciation accounts.
(d) The fixed assets section of the balance sheet at the end of each year, for the years ended
31 December 20X5 and 20X6.