Question One The cost of plant in use with Hand Sanitizer Ltd (Hand Sanitizer), a manufacturing firm on 1st April 2018 was GH₵375,000 against which the accumulated depreciation stood at GH₵157,500 on that date. The firm provided depreciation at 30% of the diminishing value. On 31st December 2018 two plants costing GH₵22,500 and GH₵18,000 respectively, both purchased on 1st October 2015, had to be discarded because of damages and had to be replaced by two new plants costing GH₵30,000 and GH₵22,500 respectively. One of the discarded plants was sold for GH₵12,000, against the other it was expected that GH₵4,500 would be realisable. Required: Show the relevant accounts in the ledger of Hand Sanitizer for the year ended 31st March 2019. (7 mark

Hand Sanitizer Ltd

Relevant Ledger Accounts for the year ended 31st March 2019:

a) Plant Account

Date                Description                            Debit          Credit

                                                                       GH₵           GH₵

April 1, 2018    Balance b/d                           375,000

Dec 31, 2018   Plants Disposal Account                          40,500

Dec 31, 2018   Cash for New Plants             52,500

Dec 31, 2018   Balance c/d                                             387,000

                        Total                                     427,500    427,500

b) Accumulated Depreciation - Plant

Date                Description                            Debit          Credit

                                                                        GH₵            GH₵

April 1, 2018      Balance b/d                                               157,500.00

Dec. 31, 2018    Plants Disposal Account     27,427.10

March 31, 2019 Depreciation Expense                              65,265.63

March 31, 2019 Balance c/d                       195,338.53

                        Total                                   222,765.63   222,765.63

c) Plants Disposal Account

Date                Description                            Debit          Credit

                                                                       GH₵           GH₵

Dec. 31, 2018  Plant Account                        40,500

Dec. 31, 2018  Accumulated Depreciation                    27,427.10

Dec. 31, 2018  Cash                                                        12,000.00

Dec. 31, 2018  Loss on Disposal                                       1,072.90

Total                                                              40,500      40,500

d) Depreciation Expense Account - Plant

Date                Description                            Debit            Credit

                                                                        GH₵              GH₵

March 31, 2019 Accumulated Depreciation  65,265.63

Explanation:

a) Depreciation method is 30% on the diminishing value or the reducing balance.  This is one of the methods of asset depreciation.  Others are the straight-line method, the accelerated method, and production units method.  The diminishing value method calculates depreciation based on the difference between the cost and accumulated depreciation, including disposals.  The straight-line method applies the same amount over the useful life of the asset.  The accelerated methods ensure that depreciation in the earlier years is greater than in the later years to balance the increasing maintenance costs associated with the asset as the years go by.  A variant of the accelerated method is the production units method, which depreciates the asset according to the units of production each year.

b) Accumulated Depreciation on two plants on the reducing balance:

October, 2015 - March 2016 6 months (30% of 40,500 x 6/12)     6,075.00

April 1, 2016 to March 2017  12 months (30% of 34,425) =            10,327.50

April 1, 2017 to March 2018  12 months (30% of 24,097.5) =          7,229.25

April 1, 2018 to Dec. 2018      9 months (30% of 16,868.25 x 9/12) 3,795.35

Total                                                                                                  27,427.10

c) Depreciation Expense for March 31, 2019:

i) Depreciation on old plant (reduced balance):

Balance on asset                 =  375,000.00

Disposal                               =  -40,500.00

Accumulated Depreciation = -130,072.90

Balance on asset                 =  204,427.10

30% on 204,427.10 = 61,328.13

ii) Depreciation on new plants:

30% of 52,500 x 3/12 = 3,937.50

i + ii = 65,265.63

d) One of the old plants had not yet been sold.  So, nothing was realized from it so far.   The GH₵4,500 that would be realisable from its sale had not yet happened and is not taken into account.

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