Answer to Question #249485 in Accounting for OK MOLEFE

Question

6 Depreciation on Vehicles is calculated at 20% on the diminishing balance method. The bookkeeper calculated the depreciation on vehicles at 25% on the Cost price method and entered the amount in the books of the business. No vehicles were sold or purchased during the financial year ended on 28 February 2021. show the accounts to be affected to DEBIT AND CREDITED

REASON FOR ERROR:

CALCULATIONS:

T-ACCOUNTS:





EXPLANATION OF T-ACCOUNTS:

Answer 1

Solution:

The accounts to be affected are the Depreciation account, Profit & Loss account, and Accumulated depreciation vehicle account.

Dr. Depreciation on Vehicle account

         Cr. Vehicle account

(To record depreciation charged on the book value of the vehicle)

Dr. Profit & Loss account

         Cr. Depreciation on Vehicle account

(To record depreciation on vehicle transferred to P&L account

 

The reason for the error is because the straight-line method of depreciation has been used instead of the reducing balance method.

The reducing balance method uses the netbook values when calculating depreciation instead of cost values used by the straight-line method.

The calculation under reducing balance method = Net book value x Rate of depreciation

 

The T-accounts maintained are the Vehicle amount which shows the netbook values and the accumulated depreciation vehicle account which shows the depreciation values transferred to the Profit and Loss account.