Carlita owns a restaurant in her local area. Carlita’s financial year end is 30 April.
On 1 May 2022, she bought furniture costing $15 000 and paid for it by cheque. Carlita’s policy for the depreciation of furniture is to use the reducing balance method of depreciation at 20% per annum. Carlita charges depreciation in the year of purchase.
(a) Prepare an extract from the income statement for the year ended 30 April 2023 and an extract of the non-current assets section from the statement of financial position at 30 April 2023.
(b) Prepare an extract from the income statement for the year ended 30 April 2024 and an extract of the non-current assets section from the statement of financial position at 30 April 2024.
Answer:
(a)
Calculate the depreciation charge for the first year by finding 20% of the net book value
In the first year, the net book value and cost are the same
20% × $15 000 = $3 000
$15 000 - $3 000 = $12 000
Prepare the extracts
Only include the year’s depreciation on the income statement
Include the cost, accumulated depreciation and net book value on the statement of financial position
Carlita Extract from the Income Statement for the year ended 30 April 2023 |
| $ |
Expenses | |
Depreciation of furniture | 3 000 |
Carlita Extract from the Statement of Financial Position at 30 April 2023 |
| $ | $ | $ |
Non-current assets | Cost | Provision for depreciation | Net book value |
Furniture | 15 000 | 3 000 | 12 000 |
(b)
20% × $12 000 = $2 400
$3 000 + $2 400 = $5 400
$15 000 - $5 400 = $9 600
Prepare the extracts
Only include the year’s depreciation on the income statement
Include the cost, accumulated depreciation and net book value on the statement of financial position
Carlita Income Statement (extract) for the year ended 30 April 2024 |
| $ |
Expenses | |
Depreciation of furniture | 2 400 |
Carlita Statement of Financial Position (extract) at 30 April 2024 |
| $ | $ | $ |
Non-current assets | Cost | Provision for depreciation | Net book value |
Furniture | 15 000 | 5 400 | 9 600 |