Furniture and vehicles were purchased on 1 July 20.21 at R80 000 and R300 000 respectively. Depreciation is written off on furniture at 12,5% per year on cost and on vehicles at 20% per year on the diminishing balance method. The necessary write- offs for the current year have been made.

Question

Furniture and vehicles were purchased on 1 July 20.21 at R80 000 and R300 000 respectively. Depreciation is written off on furniture at 12,5% per year on cost and on vehicles at 20% per year on the diminishing balance method. The necessary write- offs for the current year have been made.
4 The business is not registered for VAT.
a) Journalise the depreciation adjustments for the year ending 30 June 20.23 and provide clear explanation

GPT-4o mini · Answer

To record the depreciation on furniture and vehicles for the year ending 30 June 2023, we first need to calculate the depreciation amounts based on the given information.

1. Furniture Depreciation Calculation

Cost of Furniture: R80,000
Depreciation Rate: 12.5% per annum

Depreciation for Furniture for the Year Ending 30 June 2023:

\[ \text{Depreciation for Furniture} = \text{Cost} \times \text{Depreciation Rate} \] \[ \text{Depreciation for Furniture} = R80,000 \times 12.5% = R10,000 \]

2. Vehicle Depreciation Calculation

Cost of Vehicles: R300,000
Depreciation Rate: 20% per annum

First Year of Depreciation (20.21 to 20.22)

Depreciation for the First Year: \[ \text{Depreciation} = R300,000 \times 20% = R60,000 \]
Carrying amount after 1 year: \[ \text{Carrying Amount} = R300,000 - R60,000 = R240,000 \]

Second Year of Depreciation (20.22 to 20.23)

Depreciation for the Second Year: \[ \text{Depreciation} = R240,000 \times 20% = R48,000 \]
Carrying amount after 2 years: \[ \text{Carrying Amount} = R240,000 - R48,000 = R192,000 \]

Summary of Depreciation

Total Depreciation on Furniture for the Year Ending 30 June 2023: R10,000
Total Depreciation on Vehicles for the Year Ending 30 June 2023: R48,000

Journal Entries

For Depreciation of Furniture

Date: 30 June 2023
  Dr Depreciation Expense (Furniture)            R10,000 
      Cr Accumulated Depreciation (Furniture)              R10,000 
  (To record annual depreciation on furniture at 12.5% on cost)

For Depreciation of Vehicles

Date: 30 June 2023
  Dr Depreciation Expense (Vehicles)             R48,000 
      Cr Accumulated Depreciation (Vehicles)             R48,000 
  (To record annual depreciation on vehicles at 20% on the diminishing balance)

Explanation

Depreciation Expense (Furniture): This entry reflects the annual depreciation expense of R10,000 for furniture, which has been calculated at 12.5% of the original cost.
Accumulated Depreciation (Furniture): This account is credited to show that the value of the furniture has decreased due to depreciation.
Depreciation Expense (Vehicles): This entry records the depreciation expense of R48,000 for the vehicles, calculated at 20% of the diminishing balance (after the first year’s depreciation).
Accumulated Depreciation (Vehicles): Similar to furniture, this account shows the accumulated depreciation on the vehicles, reflecting their decreased value.

This approach ensures that both the furniture and vehicles are accurately accounted for in the financial statements, adhering to the principles of depreciation and matching expenses with revenues.