Ancient Waters Limited is a company involved in bottling spring water. The company purchased a bottling plant on 2 January 2012. The plant is made up of three significant components, the cost of which is as follows: Description of Component Cost Residual Value Expected Useful life Engine R1 500 000 R500 000 5 Conveyor Belt and Fittings R2 000 000 0 8 Ouuter Structure R800 000 R50 000 3 Other costs incurred in relation to the bottling plant are as follows: Description of cost Value ( R ) Transaction Date Delivery and Installation 750 000 5 Jan 2012 Staff Training 60 000 16 Jan 2012 Testing to ensure plant fully operational before start of production 33 000 19 Jan 2012 Launch Party 210 000 21 Jan 2012 Initial Operating Loss 45 000 March 2012 Other information: The plant was available for use in production on 1 February 2012, although production only began on 1 March 2012. The plant was temporarily idle during December 2012 when the factory closed down for its annual holiday period. The company uses the straight-line method when depreciating its bottling plant (not apportioned for part of a month). All ‘other costs’ are incurred evenly across the three significant components of the bottling plant (i.e. where appropriate, a third of the cost is allocated to each component). The only other asset owned by Ancient Waters Limited is land used for parking purposes, which was purchased on 5 December 2010 for R4 000 000. The land is not depreciated. All costs incurred were paid for in cash. Required: a) Show all related journal entries relating to the bottling plant for the year ended 31 December 2012 and 2013. Round to the nearest Rand. Ignore tax.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Ancient Waters Limited is a company involved in bottling spring water. The company purchased a bottling plant on 2 January 2012. The plant is made up of three significant components, the cost of which is as follows:
|
Description of Component |
Cost |
Residual Value |
Expected Useful life |
|
Engine |
R1 500 000 |
R500 000 |
5 |
|
Conveyor Belt and Fittings |
R2 000 000 |
0 |
8 |
|
Ouuter Structure |
R800 000 |
R50 000 |
3 |
Other costs incurred in relation to the bottling plant are as follows:
|
Description of cost |
Value ( R ) |
Transaction Date |
|
Delivery and Installation |
750 000 |
5 Jan 2012 |
|
Staff Training |
60 000 |
16 Jan 2012 |
|
Testing to ensure plant fully operational before start of production |
33 000 |
19 Jan 2012 |
|
Launch Party |
210 000 |
21 Jan 2012 |
|
Initial Operating Loss |
45 000 |
March 2012 |
Other information:
The plant was available for use in production on 1 February 2012, although production only began on 1 March 2012.
The plant was temporarily idle during December 2012 when the factory closed down for its annual holiday period.
The company uses the straight-line method when depreciating its bottling plant (not apportioned for part of a month).
All ‘other costs’ are incurred evenly across the three significant components of the bottling plant (i.e. where appropriate, a third of the cost is allocated to each component).
The only other asset owned by Ancient Waters Limited is land used for parking purposes, which was purchased on 5 December 2010 for R4 000 000. The land is not depreciated.
All costs incurred were paid for in cash.
Required:
a) Show all related
Step by step
Solved in 2 steps with 6 images
