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28 August, 02:37

The cost of plant in use with Hand Sanitizer Ltd (Hand Sanitizer), a manufacturing firm on 1 st 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

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  1. 28 August, 02:46
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    Hand Sanitizer Ltd

    Relevant Accounts for the year ended 31st March 2019:

    1. Plant Account:

    Debit Balance on 1st April 2018 = GH₵375,000

    Credit: Disposal of Plants on 31st December 2018 = GH₵40,500 (GH₵22,500 and GH₵18,000)

    Debit: New Plants on 31st December 2018 = GH₵52,500

    Debit Balance on 31st March 2019 = GH₵387,000

    2. Accumulated Depreciation - Plant:

    Credit Balance on 1st April 2018 = GH₵157,500

    Debit: Disposal of Plants on 31st December, 2018 = GH₵27,427.10

    Credit: Depreciation Expense (100,350 + 3,937.50) = GH₵104,287.50

    Credit Balance on 31st March 2019 = GH₵234,360.40

    3. Depreciation Expense:

    Debit: Accumulated Depreciation for old plant GH₵100,350

    Debit: Accumulated Depreciation for new plants GH₵3,937.50

    Total = GH₵104,287.50

    4. Disposal of Plants Account:

    Debit: Plants = GH₵40,500

    Credit: Accumulated Depreciation = GH₵27,427.10

    Credit: Cash = GH₵16,500 (12,000 + 4,500)

    Debit: Gain from Sale = GH₵3,427.10

    Balance = GH₵0

    Explanation:

    a) Accumulated Depreciation for the disposed plants on reduced balance:

    October 2015 to March 2016 for 6 months (30% of GH₵40,500 for 6 months) = GH₵6,075

    March 2017 for 12 months = GH₵10,327.50

    March 2018 for 12 months = GH₵7,229.25

    December 2018 for 9 months = GH₵3,795.35

    Total = GH₵27,427.10

    b) Reduced Balance for Disposed Plants

    October 2015 Cost = GH₵40,500

    March 2016 less Depreciation = GH₵6,075

    Reduced Balance = GH₵34,425

    March 2017 less Depreciation = GH₵10,327.50

    Reduced Balance = GH₵24,097.50

    March 2018 less Depreciation = GH₵7,229.25

    Reduced Balance = GH₵16,868.25

    December 2018 less Depreciation = GH₵3,795.35

    Reduced Balance = GH₵13,072.90

    The depreciation charge for 2016 was for 6 months while the 2018 charge was for 9 months.
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