Example:

A company starts in business on 1 January 1999, the financial year end being 31 December. You are to show:

a. The computation of depreciation

The machinery bought was:

1999 1 January 1 plant costing £8,000

2000 1 July 2 plant costing £5,000 each 1 October 1 plant costing £6,000

2002 1 April 1 plant costing £2,000

Depreciation is at the rate of 10 per cent per annum, using the straight-line method, plant being depreciated for each proportion of a year.

Plant a/c 1999 £ 199 £ 1/1 Cashbook 8000 31/12 Bal c/d 8000 2000 2000 1/1 Bal b/d 8000 1/7 Cashbook 10,000 1/10 Cashbook 6,000 31/12 Bal c/d 24,000 24,000 24,000 2001 2001 1/1 Bal b/d 24,000 31/12 Bal c/d 24,000 2002 2002 1/1 Bal b/d 24,000 1/4 Cashbook 2,000 31/12 Bal c/d 26,000 26,000 26,000

Calculation for Depreciation 1999 £ Accumulated Depreciation £8,000 x 10/100 x 12/12 = 800 800

2000 £10,000 x 10/100 x 6/12 = 500

£6,000 x 10/100 x 3/12 = 150 £8,000 x 10/100 x 12/12 = 800

1,450 2,250

2001 £24,000 x 10/100 x 12/12 = 2400 4,650

2002 £24,000 x 10/100 x 12/12 = 2400

£2,000 x 10/100 x 9/12 = 150 2,250 7,200

Balance Sheet (Extract) as at 31/12/99 – 31/12/02

Non Current Assets Cost

Total NBV Depreciation 1999 Motor vans 8,000 (800) 7,200 1999 Motor vans 24,000 (2,250) 21,750 1999 Motor vans 24,000 (4,650) 19,350 1999 Motor vans 26,000 (7,200) 18,800