On 1st July 2017 Utensilite Ltd acquired a 3rd Motor Vehicle for $45,000 paying cash of
$12,500 and negotiating a loan for the balance. The estimated life of the vehicle was
12 years and residual value $3,000. The vehicle was to be depreciated at the rate of
30% using the declining balance method.
Depreciation is recorded on 30th June each year.
On 30th September, 2017 and 30th September, 2018 all three vehicles were serviced
at a cost of $5,400.
On 31st March, 2019 Vehicle No 1 is sold to Extratta Traders because for $8,000.
You are required to:
a. Prepare an extract from the Balance Sheet dated 30th June, 2017 to show the
Motor Vehicles account; 3 marks
b. Record all the journal entries that took place from 1st July 2017 to 30th June
2019 (ignore GST and show all calculations). 17 marks
c. If revenue for the financial year 2018 was $61,500, prepare an extract from the
Profit and Loss Statement at 30th June 2018 indicating associated
expenses for motor vehicles for the year. 3 marks
d. Prepare an extract from the Balance Sheet dated 30th June, 2019 to show the
Motor Vehicles account. 3 marks
B. Why would Utensilite choose the two methods of depreciation it has? What is
the impact of each method on Profit figures over the life of the asset? Describe
two other depreciation methods that could have been used to depreciate the
motor vehicles. Which of the four methods do you believe is most appropriate
for motor vehicles and why?