UNIVERSITY OF JOHANNESBURG

COLLEGE FOR BUSINESS AND ECONOMICS

DEPARTMENT OF COMMERCIAL ACCOUNTING

FAC22B2

UNIT 1 - Week 2 Tutorial Solution

Equipment: Journal entries

J1
02 Jan 2014 Debit Credit
Repairs: (P/L: E ) ^ R30 000^
Bank (SFP: A) ^ R30 000^
Payment for repair of equipment. It is not capitalised.

J2
31 December 2014 Debit Credit
Depreciation expense: Equipment: (P/L: E ) ^ R17 227^P
Accumulated Depreciation: Equipment (SFP: -A) ^ R17 227^P
Depreciation on equipment
2012:(180 000 ^X 12,5% ^X 12/12) = 22 500
2013: (180 000^ – 22 500^P) X 12,5% ^x 12/12 = 19 688
2014: (180 000^ – 22 500 ^P– 19 688^P) X 12,5% ^X 12/12 = 17 227
Since the additional cost was not capitalised because it doesn’t meet the recognition criteria, it is not
included in the cost thus not depreciated.

Light aircraft: Journal entries

J3
31 December 2014 Debit Credit
Depreciation expense: bodywork (P/L: E) ^ R10 000^
Accumulated Depreciation: Bodywork (SFP: -A) ^ R10 000^
Depreciation on aircraft bodywork
Workings: (80 000 – 0) ^ /8 ^

J4

31 December 2014 Debit Credit

Depreciation expense: Engine and propellers (P/L: E )^ R24 000^P

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 Accumulated Depreciation: Engine and propellers (SFP: -A) R24 000^P
^
Depreciation on aircraft engine and propellers
Working: (200 000^ – 80 000^) *(3 000^/15 000^).

Vehicle

J5
31 December 2014 Debit Credit
Depreciation expense: Vehicle (P/L: E) ^ R22 500^
Accumulated Depreciation: Vehicle (SFP: -A) ^ R22 500^
Depreciation of vehicle
Workings: (100 000^ – 10 000^)/4^

J6

31 December 2014 Debit Credit

Bank (SFP: A) ^ R61 000^P
Accumulated Depreciation: Vehicle (SFP: -A) ^ R45 000 ^P
Vehicle: cost (SFP: A) ^ R100 000 ^
Loss on disposal (P/L: E) ^ R2 478 ^P
Output VAT (SFP: L) 8 478 ^
Carrying amount = Cost – Accumulated depreciation
= 100 000 ^– (22 500^ X 2^)
= 100 000 – 45 000
= 55 000 ^P
Net disposal proceeds = Proceeds from sale – any costs incurred relating to sale – any taxes
= 65 000^ – 3 000^ – 1 000^ – 8 478 (65 000 X 15/115)^
= 52 522
Profit/(loss) on disposal = Net disposal proceeds – Carrying amount
= 52 522 ^– 55 000 ^P
= 2 478 (Loss)

Computer

J7
15 March 2014 Debit Credit
Computer: cost: (SFP: A) R50 000
Prepaid Asset (SFP: A) R50 000
Recognition of cost of computer
Note to students:
• The computer was acquired and purchased on 24 December 2013 and thus, the journal
entry of the payment was processed on the date. Prepaid expense (SFP: A) was debited
as the risks and rewards associated with the computer was not transferred to the entity,
Input VAT (SFP: A) was debited as the VAT paid would be recovered from SARS and
Bank (SFP: A) was credited as payment was made.
• Acquisition date is 15 March 2014 because this is when the ownership of the asset
passed, therefore, the computer can only be recognised on this date. But depreciation
will start from the date the asset is available for use (1 April 2014)

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J8
31 December 2014 Debit Credit
Depreciation expense: Computer (P/L: E) ^ R7 500^P
Accumulated Depreciation: Computer (SFP-A) ^ R7 500^P
Depreciation on the computer
Depreciation Workings: (50 000-0) ^/5^ *9/12
Cost = 57 500 *100/115 = 50 000
The computer is depreciated from the date that it is available for use, which is 1 April 2014, not the date it is brought
into use
Depreciation does not cease when the computer is temporarily idle

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Week 3 – Tutorial Solution

Unwind Limited
Extract of Statement of Profit or Loss for the year ended 31 December 2014
R
Revenue XXXX
Cost of sales (XXX)
Gross profit XXX
Other income

Other expense
Legal fees (J6) (3 000)
Advertising costs (J6) (1 000)
Loss on disposal (J6) (2 478)
Repairs (J1) (30 000)
Depreciation expense (17 227 (J2) + 10 000 (J3) + 24 000 (J4) + 22 500
(81 227)
(J5) + 7 500 (J8))

Profit/(Loss) for the year XXX

Unwind Limited
Extract of Statement of Financial Position as at 31 December 2014
R
ASSETS
Non-current assets
Property, Plant and Equipment (120 585 + 174 000 + 42 500) 337 085

Current assets
Cash and cash equivalents (120 0000+ 61 000 (J6) – 30 000 (J1)) 151 000

TOTAL ASSETS XXX

Unwind Limited
Notes to the financial statements for the year ended 31 December 2014

1. Accounting Policy Note

Property, plant and equipment is shown at cost less accumulated depreciation (cost model).
Depreciation is not provided on land. Depreciation is provided on all other property, plant and
equipment over the expected economic useful life to their expected residual values. Depreciation is
provided on the following assets using the following rates and methods:

• Equipment: Diminishing balance method using 12,5% depreciation rate.

• Light aircraft:
o Bodywork and interior: Straight-line method over 8 years
o Engine and propellers: Units of production over 15 000 km
• Vehicle: Straight-line method over 4 years
• Computer: Straight-line method over 5 years

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2. Property, Plant and Equipment Reconciliation Note

Equipment Light Craft Vehicle Computer

Carrying amount 137 812 208 000 77 500 -

as at 01/01/2014

Cost 180 000 280 000 100 000 -

Accumulated 42 188 (72 000) * 22 500 -

depreciation

Movements

Acquisition/additions - - - 50 000

Depreciation (17 227) (34 000) * (22 500) (7 500)

Disposal @ CA (55 000)

Gross CA (100 000)

Acc Depreciation 45 000

Carrying amount 120 585 174 000 - 42 500

as at 31/12/2014

Cost 180 000 280 000 - 50 000

Accumulated (59 415) (106 000) - (7 500)

depreciation

Workings:

Aircraft workings:
Workings Amount

Bodywork and interior (80 000 – 0)/8 =R10 000 R20 000
Opening Acc Dep: R10 000 *2 years
Engine and propellers (200 000 – 80 000)*(6 500/15 000) R52 000

Accumulated Dep: 01/01/2014 R72 000 *

Carrying amount: 01/01/2014 (280 000 – 72 000) R208 000

Current year Depreciation: R10 000 +24 000 R34 000 *

Accumulated Dep: 31/12/2014 R72 000 + 34 000 R106 000

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 Carrying amount: 31/12/2014 280 0000 – 106 000 R174 000
Equipment workings:

Workings Amount

Annual depreciation (2012) (180 000 X 12,5%) 22 500

Annual depreciation (2013) (180 000 – 22 500) X 12,5% 19 688

Accumulated Dep: 01/01/2014 22 500 + 19 688 42 188

Carrying amount: 01/01/2014 (180 000 – 42 188) R137 812

Current year Depreciation: (180 000 – 42 188) X 12,5% R17 227

Accumulated Dep: 31/12/2014 R42 188 + 17 227 R59 415

Carrying amount: 31/12/2014 180 0000 – 59 415 R120 585

Computer workings:
• Control of the asset only passed to Unwind Limited in the current period - on 15 March
2014.
• Keep in mind that we only depreciate an asset from the date it is available for use (1 April
2014), not the date it was brought into use (1 May 2014).
• Therefore, opening balances are zero because the asset didn’t exist in previous years
Workings Amount
Accumulated Dep: 01/01/2014 0 0

Carrying amount: 01/01/2014 0 0

Current year Depreciation: [50 000 – 0]/5 *9/2 R75 00

Accumulated Dep: 31/12/2014 0 + 7 500 R7 500

Carrying amount: 31/12/2014 50 000 – 7 500 R42 500

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