C hapter 23: Double entry records for

depreciation
Contents of chapter
This chapter shows how to record depreciation of fixed assets, once the amount to be provided has been
calculated.

It also shows the adjustments needed when a fixed asset is disposed of, either at a profit or at a loss.

Notes for teachers

Two alternative methods of recording depreciation (i.e. depreciation expense account method and
1
provision for depreciation account method) are shown. Both methods are used in businesses, although
the provision for depreciation account method is more common.

In order not to confuse students, teachers should stress:

2
(i) Both methods: Depreciation is charged as an expense in the profit and loss account.
(ii) Depreciation expense account method: Credit entry for depreciation is made in an asset account.
(iii) Provision for depreciation account method: Credit entry for depreciation is made in a separate
provision for depreciation account.

Disposal of an asset:
3
(i) Cash received is greater than written down value = Profit on sale.
(ii) Cash received is less than written down value = Loss on sale.
Profit goes to the credit side of the profit and loss account; loss goes to the debit side of the profit and
loss account.

Sometimes, an old fixed asset is traded in for a new one. The trade-in allowance will be credited to the
4
disposal account.

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 Answers to MCQs and exercises
23.1 D 23.2 B 23.3 B 23.4 C 23.5 B

23.6
(a) Motor Vehicles
20X4 $ 20X4 $
Jan 1 Cash 12,500 Dec 31 Balance c/d 12,500
20X5 20X5
Jan 1 Balance b/d 12,500 Dec 31 Balance c/d 12,500
20X6 20X6
Jan 1 Balance b/d 12,500 Dec 31 Balance c/f 12,500

(b) Provision for Depreciation: Motor Vehicles

20X4 $ 20X4 $
Dec 31 Balance c/d 2,500 Dec 31 Profit and loss ($12,500 × 20%) 2,500
20X5 20X5
Dec 31 Balance c/d 4,500 Jan 1 Balance b/d 2,500
Dec 31 Profit and loss [($12,500 – $2,500) × 20%] 2,000
4,500 4,500
20X6 20X6
Dec 31 Balance c/f 6,100 Jan 1 Balance b/d 4,500
Dec 31 Profit and loss [($12,500 – $4,500) × 20%] 1,600
6,100 6,100

(c) Profit and Loss Accounts for the years ended 31 December (extract)
$
20X4 Provision for depreciation: Motor vehicles 2,500
20X5 Provision for depreciation: Motor vehicles 2,000
20X6 Provision for depreciation: Motor vehicles 1,600

(d) Balance Sheets as at 31 December (extract)

20X4 20X5 20X6
$ $ $
Motor vehicles at cost 12,500 12,500 12,500
Less Accumulated depreciation 2,500 4,500 6,100
10,000 8,000 6,400

23.7X
(a) (i) Straight-line Method
Machinery
20X5 $ 20X6 $
Nov 1 Cash 18,000 Oct 31 Balance c/d 18,000
20X6 20X7
Nov 1 Balance b/d 18,000 Oct 31 Balance c/d 18,000
20X7 20X8
Nov 1 Balance b/d 18,000 Oct 31 Balance c/f 18,000

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 Provision for Depreciation: Machinery
20X6 $ 20X6 $
Oct 31 Balance c/d 1,800 Oct 31 Profit and loss ($18,000 x 10%) 1,800
Nov 1 Balance b/d 1,800
20X7 20X7
Oct 31 Balance c/d 3,600 Oct 31 Profit and loss 1,800
3,600 3,600
Nov 1 Balance b/d 3,600
20X8 20X8
Oct 31 Balance c/d 5,400 Oct 31 Profit and loss 1,800
5,400 5,400
Nov 1 Balance b/d 5,400

(ii) Reducing Balance Method

Machinery
20X5 $ 20X6 $
Nov 1 Cash 18,000 Oct 31 Balance c/d 18,000
20X6 20X7
Nov 1 Balance b/d 18,000 Oct 31 Balance c/d 18,000
20X7 20X8
Nov 1 Balance b/d 18,000 Oct 31 Balance c/f 18,000

Provision for Depreciation: Machinery

20X6 $ 20X6 $
Oct 31 Balance c/d 1,800 Oct 31 Profit and loss ($18,000 × 10%) 1,800
Nov 1 Balance b/d 1,800
20X7 20X7
Oct 31 Balance c/d 3,420 Oct 31 Profit and loss 1,620
3,420 [($18,000 – $1,800) × 10%] 3,420
Nov 1 Balance b/d 3,420
20X8 20X8
Oct 31 Balance c/d 4,878 Oct 31 Profit and loss 1,458
4,878 [($18,000 – $3,420) × 10%] 4,878
Nov 1 Balance b/d 4,878

(b) (i) Straight-line Method

Profit and Loss Accounts for the years ended 31 October (extract)
$
20X6 Provision for depreciation: Machinery 1,800
20X7 Provision for depreciation: Machinery 1,800
20X8 Provision for depreciation: Machinery 1,800

Balance Sheets as at 31 October (extract)

20X6 20X7 20X8
$ $ $
Machinery at cost 18,000 18,000 18,000
Less Aggregate depreciation 1,800 3,600 5,400
Net book value 16,200 14,400 12,600

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 (ii) Reducing Balance Method

Profit and Loss Accounts for the years ended 31 October (extract)
$
20X6 Provision for depreciation: Machinery 1,800
20X7 Provision for depreciation: Machinery 1,620
20X8 Provision for depreciation: Machinery 1,458

Balance Sheets as at 31 October (extract)

20X6 20X7 20X8
$ $ $
Machinery at cost 18,000 18,000 18,000
Less Aggregate depreciation 1,800 3,420 4,878
Net book value 16,200 14,580 13,122

23.8
(a) Van Disposal
$ $
Van 12,000 Provision for depreciation 9,700
Cash 1,850
Profit and loss: Loss from disposal 450
12,000 12,000

(b) Machinery Disposal

$ $
Machinery 27,900 Provision for depreciation 19,400
Profit and loss: Profit from disposal 2,770 Cash 11,270
30,670 30,670

(c) Buildings Disposal

$ $
Buildings 200,000 Provision for depreciation
Profit and loss: Profit from disposal 59,000 ($200,000 × 5% × 11 years) 110,000
Cash 149,000
259,000 259,000

23.9X
$54 ,000 − $3 ,000
Depreciation charge per machine each year = = $8,500
6
(a) Machinery
20X4 $ 20X4 $
Jan 1 Cash 162,000 Dec 31 Balance c/d 162,000
20X5 20X5
Jan 1 Balance b/d 162,000 Dec 31 Balance c/d 162,000
20X6 20X6
Jan 1 Balance b/d 162,000 Jan 1 Machinery disposals 54,000
Dec 31 Balance c/f 108,000
162,000 162,000

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(b) Provision for Depreciation: Machinery
20X4 $ 20X4 $
Dec 31 Balance c/d 25,500 Dec 31 Profit and loss ($8,500 x 3) 25,500
20X5 20X5
Dec 31 Balance c/d 51,000 Jan 1 Balance b/d 25,500
Dec 31 Profit and loss 25,500
51,000 51,000
20X6 20X6
Jan 1 Machinery disposals ($8,500 x 2) 17,000 Jan 1 Balance b/d 51,000
Dec 31 Balance c/f 51,000 Dec 31 Profit and loss ($8,500 × 2) 17,000
68,000 68,000

(c) Machinery Disposals

20X6 $ 20X6 $
Jan 1 Machinery 54,000 Jan 1 Provision for depreciation 17,000
" 1 Cash 24,600
Dec 31 Profit and loss: Loss from disposal 12,400
54,000 54,000

(d) Profit and Loss Accounts for the years ended 31 December (extract)
$
20X4 Provision for depreciation: Machinery 25,500
20X5 Provision for depreciation: Machinery 25,500
20X6 Machinery disposals: Loss from disposal 12,400
Provision for depreciation: Machinery 17,000

(e) Balance Sheets as at 31 December (extract)

20X4 20X5 20X6
$ $ $
Machinery at cost 162,000 162,000 108,000
Less Aggregate depreciation 25,500 51,000 51,000
Net book value 136,500 111,000 57,000

23.10
(a) Computer
20X6 $ 20X6 $
Jan 1 Cash 9,500 Dec 31 Balance c/d 10,000
" 1 Cash: Installation cost 500
10,000 10,000
20X7 20X7
Jan 1 Balance b/d 10,000 Dec 31 Balance c/d 10,000
20X8 20X8
Jan 1 Balance b/d 10,000 Dec 31 Balance c/d 10,000
20X9 20X9
Jan 1 Balance b/d 10,000 Jan 1 Computer disposal 10,000

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 (b) Provision for Depreciation: Computer
20X6 $ 20X6 $
Dec 31 Balance c/d 2,000 Dec 31 Profit and loss 2,000
20X7 20X7
Dec 31 Balance c/d 4,000 Jan 1 Balance b/d 2,000
Dec 31 Profit and loss 2,000
4,000 4,000
20X8 20X8
Dec 31 Balance c/d 6,000 Jan 1 Balance b/d 4,000
Dec 31 Profit and loss 2,000
6,000 6,000
20X9 20X9
Jan 1 Computer disposal 6,000 Jan 1 Balance b/d 6,000

Depreciation charge per annum = $10,000 × 20% = $2,000.

(c) Computer Disposal

20X9 $ 20X9 $
Jan 1 Computer 10,000 Jan 1 Provision for depreciation 6,000
Dec 31 Profit and loss: Profit from disposal 250 " 1 Cash 4,250
10,250 10,250

(d) Profit and Loss Accounts for the years ended 31 December (extract)
$ $
20X6 Provision for depreciation: Computer 2,000
20X7 Provision for depreciation: Computer 2,000
20X8 Provision for depreciation: Computer 2,000
20X9 Computer disposal: Profit from disposal 250

(e) Balance Sheets as at 31 December (extract)

20X6 20X7 20X8
$ $ $
Computer at cost 10,000 10,000 10,000
Less Accumulated depreciation 2,000 4,000 6,000
8,000 6,000 4,000

23.11X
(a) Machinery
20X5 $ 20X5 $
Jan 1 Bank 640 Dec 31 Balance c/d 640
20X6 20X6
Jan 1 Balance b/d 640 Dec 31 Balance c/f 1,360
Oct 1 Bank 720
1,360 1,360

(b) Fixtures
20X5 $ 20X5 $
Jan 1 Bank 100 Dec 31 Balance c/d 300
Jul 1 Bank 200
300 300
20X6 20X6
Jan 1 Balance b/d 300 Dec 31 Balance c/f 350
Dec 1 Bank 50
350 350

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(c) Provision for Depreciation: Machinery
20X5 $ 20X5 $
Dec 31 Balance c/d 80 Dec 31 Profit and loss ($640 × 12.5%) 80
20X6 20X6
Dec 31 Balance c/f 240 Jan 1 Balance b/d 80
Dec 31 Profit and loss
{[($640 – $80) + $720] × 12.5%} 160
240 240

Provision for Depreciation: Fixtures

20X5 $ 20X5 $
Dec 31 Balance c/d 30 Dec 31 Profit and loss ($300 x 10%) 30
20X6 20X6
Dec 31 Balance c/f 62 Jan 1 Balance b/d 30
Dec 31 Profit and loss {[($300 – 30) + $50] × 10%} 32
62 62

(d) Balance Sheets as at 31 December (extracts)

20X5 $ $
Machinery at cost 640
Less Aggregate depreciation 80 560
Fixtures at cost 300
Less Aggregate depreciation 30 270

20X6
Machinery at cost 1,360
Less Aggregate depreciation 240 1,120
Fixtures at cost 350
Less Aggregate depreciation 62 288

23.12
(a) Depreciation is the part of the cost of the fixed asset consumed during its period of use by the firm. Depreciation
must be charged to profit and loss account because it represents cost of using assets in the firm. If depreciation is
not charged, profits would be overstated. This could encourage businessmen to take out more drawings than the
firm can afford.

(b) (i) Lorries

20X7 $ 20X7 $
Jan 1 Cash ($4,800 × 3) 14,400 Dec 31 Balance c/d 14,400
20X8 20X8
Jan 1 Balance b/d 14,400 Dec 31 Balance c/d 14,400
20X9 20X9
Jan 1 Balance b/d 14,400 Jan 1 Lorries disposal 4,800
Dec 31 Balance c/f 9,600
14,400 14,400

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 (ii) Provision for Depreciation: Lorries
20X7 $ 20X7 $
Dec 31 Balance c/d 2,700 Dec 31 Profit and loss (W1) 2,700
20X8 20X8
Dec 31 Balance c/d 5,400 Jan 1 Balance b/d 2,700
Dec 31 Profit and loss 2,700
5,400 5,400
20X9 20X9
Jan 1 Lorries disposal (W2) 1,800 Jan 1 Balance b/d 5,400
Dec 31 Balance c/f 5,400 Dec 31 Profit and loss 1,800
7,200 7,200

$4 ,800 − $300 $4 ,500

Workings: (W1) Depreciation per lorry is = = $900 per annum
5 5
(W2) 2 years‘ depreciation on lorry sold = $900 × 2 = $1,800

(iii) Lorries Disposal

20X9 $ 20X9 $
Jan 1 Lorries 4,800 Jan 1 Provision for depreciation 1,800
" 1 Cash 2,500
Dec 31 Profit and loss: Loss from disposal 500
4,800 4,800

23.13
(a) Machinery
20X5 $ 20X5 $
Jan 1 Cash 24,000 Dec 31 Balance c/d 51,000
Jul 1 Cash 27,000
51,000 51,000
20X6 20X6
Jan 1 Balance b/d 51,000 Dec 31 Balance c/d 81,000
Apr 1 Cash 30,000
81,000 81,000
20X7 20X7
Jan 1 Balance b/d 81,000 Jan 1 Machinery disposal 24,000
" 1 Cash 28,000 Dec 31 Balance c/f 85,000
109,000 109,000

(b) Provision for Depreciation: Machinery

20X5 $ 20X5 $
Dec 31 Balance c/d 7,500 Jan 1 Profit and loss (W1) 7,500
20X6 20X6
Dec 31 Balance c/d 22,200 Jan 1 Balance b/d 7,500
Dec 31 Profit and loss (W2) 14,700
22,200 22,200
20X7 20X7
Jan 1 Machinery disposal (W3) 9,600 Jan 1 Balance b/d 22,200
Dec 31 Balance c/f 29,600 Dec 31 Profit and loss (W3) 17,000
39,200 39,200

Workings:
(W1) 20X5: (No. 1) : $24,000 × 20% = $4,800, (No. 2) : $27,000 × 20% × 6 months = $2,700. Total = $7,500.
(W2) 20X6: (No. 1) : $4,800, (No. 2) : $5,400, (No. 3) : $30,000 × 20% × 9 months = $4,500.
Total = $14,700.
(W3) 20X7: On machine sold: (No. 1) : (20X5) $4,800 + (20X6) $4,800 = $9,600.
On machines kept: (No. 2) $5,400 + (No. 3) $6,000 + (No. 4) $28,000 × 20% = $5,600. Total = $17,000.
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(c) The Journal
Dr Cr
20X7 $ $
Jan 1 Provision for depreciation: Machinery 9,600
Cash 12,950
Machinery disposals 1,450
Machinery 24,000
Dec 31 Profit and loss : Loss from disposal 1,450
Machinery disposals 1,450

(d) Balance Sheets (Extract)

31.12.20X5 31.12.20X7
$ $ $ $
Machinery at cost 51,000 85,000
Less Accumulated depreciation 7,500 43,500 29,600 55,400

23.14X
Motor vehicles Machinery
Reducing balance Straight-line Reducing balance Straight-line
25% 20%
20X6 $ $ $ $
Annual depreciation 40,000 40,000 15,000 12,500
($160,000 x 25%) ($160,000/4) ($75,000 x 20%) ($75,000/6)
20X7
Annual depreciation 30,000 40,000 21,000 20,000
($160,000 – $40,000) x 25% [($75,000 – $15,000) + ($12,500 +
$45,000] x 20% $45,000/6)
20X8
Annual depreciation 52,500 70,000 16,800 20,000
[($160,000 – $40,000 – $30,000) $40,000 + ($75,000 + $45,000 –
+ $120,000] x 25% ($120,000/4) $15,000 – $21,000) x 20%

Reducing balance Straight-line Change in depreciation

Year 20X6 $40,000 + $15,000 = $55,000 $40,000 + $12,500 = $52,500 –$2,500
Year 20X7 $30,000 + $21,000 = $51,000 $40,000 + $20,000 = $60,000 +$9,000
Year 20X8 $52,500 + $16,800 = $69,300 $70,000 + $20,000 = $90,000 +$20,700

Recalculation of Net Profits

20X6 20X7 20X8
$ $ $
Original net profits 114,500 138,490 127,140
Add Decreased depreciation 2,500
Less Increased depreciation 9,000 20,700
Recalculated net profits 117,000 129,490 106,440

23.15X
(a)
Depreciation per year Net book value
Cost 20X4 20X5 20X6 20X7 20X8 Total as at 31.12.20X8
$ $ $ $ $ $ $ $
Computer 1 32,500 6,500 6,500 6,500 6,500 6,500 32,500 _
Computer 2 35,000 _ 7,000 7,000 7,000 7,000 28,000 7,000
Computer 3 48,000 _ _ 9,600 9,600 9,600 28,800 19,200
Computer 4 42,500 _ _ _ 8,500 8,500 17,000 25,500
Computer 5 40,000 _ _ _ _ _ _ 40,000
198,000 6,500 13,500 23,100 31,600 31,600 106,300 91,700

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 (b) The Journal
Dr Cr
20X9 $ $
Jan 1 Provision for depreciation: Computers 28,800
Cash 16,250
Computer disposal 2,950
Computers 48,000
Dec 31 Profit and loss: Loss from disposal 2,950
Computer disposal 2,950

23.16X
(a) • Time factor: limited legal life.
• Physical deterioration.
• Economic factor: obsolescence and inadequacy.
• Depletion.

(b) (i) Time factor.

(ii) Physical deterioration.
(iii)Obsolescence.
(iv) Time factor.
(v) If it refers to a piece of land, it is not subject to depreciation. But if it refers to natural resources like mines
and quarries, it will be depleted.
(vi) Depletion.

(c) (i) Lorries

20X5 $ 20X5 $
Jan 1 Cash (No. 1) 32,000 Dec 31 Balance c/d 68,000
" 1 Cash (No. 2) 36,000
68,000 68,000
20X6 20X6
Jan 1 Balance b/d 68,000 Dec 31 Balance c/d 122,000
Sep 30 Cash (No. 3) 48,000
" 30 Cash (No. 3) 6,000
122,000 122,000
20X7 20X7
Jan 1 Balance b/d 122,000 Jul 16 Lorry disposals (No. 3)
Jul 14 Cash (No. 4) 30,000 ($48,000 + $6,000) 54,000
" 14 Cash (No. 5) 28,000 Dec 31 Balance c/d 126,000
180,000 180,000
20X8 20X8
Jan 1 Balance b/d 126,000 Nov 5 Lorry disposals (No. 2) 36,000
Nov 5 Kam Motors (No. 6) 31,350 Dec 31 Balance c/f 140,000
" 5 Lorry disposals: Trade-in allowance (No. 6) 18,650
176,000 176,000

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(ii) Provision for Depreciation: Lorries
20X5 $ 20X5 $
Dec 31 Balance c/d 17,000 Dec 31 Profit and loss 17,000
20X6 20X6
Dec 31 Balance c/d 43,250 Jan 1 Balance b/d 17,000
Dec 31 Profit and loss 26,250
43,250 43,250
20X7 20X7
Jul 16 Lorry disposals (No. 3) 13,500 Jan 1 Balance b/d 43,250
Dec 31 Balance c/d 53,813 Dec 31 Profit and loss 24,063
67,313 67,313
20X8 20X8
Nov 5 Lorry disposals (No. 2) 20,813 Jan 1 Balance b/d 53,813
Dec 31 Balance c/f 59,750 Dec 31 Profit and loss 26,750
80,563 80,563

For depreciation, refer to the workings below.

Workings:
Depreciation
(1) (2) (3) (4) (5) (6) Total
$ $ $ $ $ $ $
20X5 32,000 36,000
–25% 8,000 9,000 — — — — 17,000
24,000 27,000
20X6 54,000
–25% 6,000 6,750 13,500 — — — 26,250
18,000 20,250 40,500
20X7 30,000 28,000
–25% 4,500 5,063 — 7,500 7,000 — 24,063
13,500 15,187 22,500 21,000
20X8 50,000
–25% 3,375 — — 5,625 5,250 12,500 26,750
10,125 16,875 15,750 37,500 94,063

Proof: Total $94,063 – Sold (No. 2) $20,813 – Sold (No. 3) $13,500 = $59,750 which is the final balance on provision
for depreciation account.

(iii) Lorry Disposals

20X7 $ 20X7 $
Jul 16 Lorries (No. 3) 54,000 Jul 16 Provision for depreciation 13,500
" 16 Bank 35,680
Dec 31 Profit and loss: Loss from disposal 4,820
54,000 54,000
20X8 20X8
Nov 5 Lorries (No. 2) 36,000 Nov 5 Provision for depreciation 20,813
Dec 31 Profit and loss: Profit from disposal 3,463 " 5 Lorries: Trade-in allowance 18,650
39,463 39,463

(iv) Balance Sheets as at 31 December (Extract)

20X5 20X6 20X7 20X8
$ $ $ $
Lorries at cost 68,000 122,000 126,000 140,000
Less Depreciation to date 17,000 43,250 53,813 59,750
51,000 78,750 72,187 80,250

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 23.17
(a) (i) Motor Vehicles
20X7 $ 20X7 $
Jan 1 Balance b/f 400,000 Jul 18 Motor vehicles disposal 88,000
Jul 18 Bank 112,000 Dec 31 Balance c/d 432,000
" 18 Motor vehicles disposal:
Trade-in allowance 8,000
520,000 520,000
20X8 20X8
Jan 1 Balance b/d 432,000 Oct 19 Motor vehicles disposal 150,000
Dec 31 Balance c/f 282,000
432,000 432,000

(ii) Provision for Depreciation: Motor Vehicles

20X7 $ 20X7 $
Jul 18 Motor vehicles disposal Jan 1 Balance b/f 240,000
($88,000 – $22,000) 66,000 Dec 31 Profit and loss ($432,000 × 20%) 86,400
Dec 31 Balance c/d 260,400
326,400 326,400
20X8 20X8
Oct 19 Motor vehicles disposal Jan 1 Balance b/d 260,400
($150,000 – $90,000) 60,000 Dec 31 Profit and loss ($282,000 × 20%) 56,400
Dec 31 Balance c/f 256,800
316,800 316,800

(iii) Motor Vehicles Disposal

20X7 $ 20X7 $
Jul 18 Motor vehicles 88,000 Jul 18 Provision for depreciation: Motor vehicles 66,000
" 18 Motor vehicles: Trade-in allowance 8,000
Dec 31 Profit and loss: Loss from disposal 14,000
88,000 88,000
20X8 20X8
Oct 19 Motor vehicles 150,000 Oct 19 Provision for depreciation: Motor vehicles 60,000
Dec 31 Profit and loss: Profit from disposal 10,000 " 19 Bank: Sales proceeds 100,000
160,000 160,000

(b) The purpose of providing for depreciation is to apply the matching concept to fixed assets. The benefits arising
from the use of fixed assets are spread over the period of their useful lives in the business so that the costs
incurred from obtaining the fixed assets can be matched against the benefits.

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