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Difficulty: MediumAdjustments for Depreciation of Fixed Assets

A sole trader extracted the following ledger balances as at 31 December 2025:

AccountDebit (₦)Credit (₦)
Delivery Equipment (Cost)3,000,000
Accumulated Depreciation (1 Jan 2025)1,000,000

Additional Information:
- Depreciation is charged at 10%10\% per annum on cost using the straight-line method.
- On 1 April 2025, an additional delivery van costing ₦600,000\text{₦}600,000 was purchased and included in the Delivery Equipment balance.

Based on the information provided, what are the annual depreciation charge and the Net Book Value of Delivery Equipment for the financial statements? Fill in the blanks below.

Answer:1. The depreciation charge in the Profit and Loss Account for the year ended 31 December 2025 is ₦【285,000】.
2. The Net Book Value of Delivery Equipment in the Balance Sheet as at 31 December 2025 is ₦【1,715,000】.

Answer

The depreciation charge for the year is ₦285,000 and the Net Book Value at year-end is ₦1,715,000.
The annual depreciation expense comprises ₦240,000\text{₦}240,000 (10%10\% on ₦2,400,000\text{₦}2,400,000 existing equipment) plus ₦45,000\text{₦}45,000 (10%10\% pro-rated for 9 months on the new ₦600,000\text{₦}600,000 addition), yielding a total charge of ₦285,000\text{₦}285,000. Subtracting total accumulated depreciation (₦1,000,000+₦285,000=₦1,285,000\text{₦}1,000,000 + \text{₦}285,000 = \text{₦}1,285,000) from the total cost of ₦3,000,000\text{₦}3,000,000 gives a Net Book Value of ₦1,715,000\text{₦}1,715,000.

Step-by-Step Solution

1
Separate the cost of existing equipment from the newly acquired asset
Cost of existing equipment = ₦3,000,000−₦600,000=₦2,400,000\text{₦}3,000,000 - \text{₦}600,000 = \text{₦}2,400,000
The total cost of ₦3,000,000\text{₦}3,000,000 includes the new van bought on 1 April 2025, so the equipment owned for the entire year equals ₦2,400,000\text{₦}2,400,000.
2
Calculate depreciation on existing equipment for the full year
Depreciation on existing equipment = ₦2,400,000×10%=₦240,000\text{₦}2,400,000 \times 10\% = \text{₦}240,000
Existing equipment was used for all 12 months.
3
Calculate pro-rata depreciation on the new delivery van
Depreciation on new van = ₦600,000×10%×912=₦45,000\text{₦}600,000 \times 10\% \times \frac{9}{12} = \text{₦}45,000
The new van was acquired on 1 April 2025 and used for 9 months (April to December).
4
Sum total annual depreciation charge for the Profit and Loss Account
Total annual depreciation = ₦240,000+₦45,000=₦285,000\text{₦}240,000 + \text{₦}45,000 = \text{₦}285,000
The total depreciation expense charged against profit is the sum of full-year and part-year depreciation.
5
Calculate the closing accumulated depreciation and Net Book Value
Accumulated Depreciation at 31 Dec 2025 = ₦1,000,000+₦285,000=₦1,285,000\text{₦}1,000,000 + \text{₦}285,000 = \text{₦}1,285,000. Net Book Value = ₦3,000,000−₦1,285,000=₦1,715,000\text{₦}3,000,000 - \text{₦}1,285,000 = \text{₦}1,715,000
Net Book Value in the Balance Sheet equals total asset cost minus total accumulated depreciation at the balance sheet date.

Key Concept

Pro-rata Straight-Line Depreciation in Sole Trader Final Accounts
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Topics

Adjustments for Depreciation of Fixed Assets

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