Break -up of Peter’s motor vehicle account is as follows:
Balance as at 1.1.2019 K 45 000
Accumulated depreciation 1.1.2019 K 5 625
Purchases during the year:
1.1.2019 Vehicle No. 1 K 20 000
30.6.2019 Vehicle No. 2 K 30 000
1.10.2019 Vehicle No. 3 K 40 000
Annual depreciation rate is 15%
Required:
Prepare the journal entry to record annual depreciation.
The annual depreciation can be calculated as follows:
Depreciation for Vehicle No. 1:
Depreciation = (Cost - Accumulated Depreciation) x Annual Depreciation Rate
Depreciation = (20,000 - 5,625) x 15%
Depreciation = 2,344
Depreciation for Vehicle No. 2:
Depreciation = (30,000 - 2,344) x 15%
Depreciation = 4,394
Depreciation for Vehicle No. 3:
Depreciation = (40,000 - 6,938) x 15%
Depreciation = 5,942
Therefore, the total annual depreciation for Peter's motor vehicle account is:
2,344 + 4,394 + 5,942 = 12,680
The journal entry to record the annual depreciation would be:
Depreciation Expense 12,680
Accumulated Depreciation 12,680
This entry reduces the value of the Motor Vehicle Account and recognizes the expense of using the vehicles for the year.