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Accounting Treatment of Depreciation and Provision for Depreciation

11 questions

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Question 1Question →

Match each accounting transaction or balance related to depreciation on the left with its correct accounting treatment or entry on the right.

Click a left item, then click its matching right item

Items

Annual depreciation charge for the financial year
Transfer of accumulated depreciation upon sale of a fixed asset
Presentation of accumulated depreciation at year-end
Purchase of a new non-current asset on credit

Matches

Show answer & explanation

Answer

Annual depreciation charge matches with 'Debit Profit and Loss Account, Credit Provision for Depreciation Account'; Transfer of accumulated depreciation upon sale matches with 'Debit Provision for Depreciation Account, Credit Asset Disposal Account'; Presentation of accumulated depreciation at year-end matches with 'Deducted from non-current asset cost in the Statement of Financial Position'; Purchase of a new non-current asset matches with 'Debit Asset Account, Credit Payable / Supplier Account'.
Each item correctly matches its double-entry posting rule or financial statement reporting format: annual depreciation expense is debited to Profit & Loss and credited to Provision for Depreciation; asset disposal requires transferring accumulated depreciation to Asset Disposal via debiting Provision for Depreciation; the accumulated provision balance is subtracted from asset cost in the Statement of Financial Position; and asset acquisition increases asset cost by debiting the asset account.

Step-by-Step Solution

1
Determine double entry for periodic depreciation expense
Debit Profit and Loss Account and Credit Provision for Depreciation Account
Depreciation is an expense reducing net profit for the period while building up the contra-asset provision account balance.
2
Determine double entry for eliminating accumulated depreciation on disposal
Debit Provision for Depreciation Account and Credit Asset Disposal Account
To close out accumulated depreciation corresponding specifically to the asset being disposed of, debit the provision account.
3
Determine balance sheet reporting for accumulated provision
Deducted from non-current asset cost in the Statement of Financial Position
Provision for depreciation is a contra-asset account presented as a deduction from historical cost to reflect the net book value.
4
Determine double entry for capital expenditure acquisition on credit
Debit Asset Account and Credit Payable / Supplier Account
Capital purchases increase the non-current asset balance and create a corresponding creditor/payable entry.

Key Concept

Accounting Treatment of Depreciation and Provision for Depreciation
Question 2Question →

A firm purchased motor vehicles costing ₦2,000,000₦2,000,000. As of 1 January 2024, the accumulated provision for depreciation on the vehicles was ₦400,000₦400,000. The business provides for depreciation at 20%20\% per annum using the reducing balance method. What is the correct double entry to record the annual depreciation expense for the year ended 31 December 2024?

Show answer & explanation

Answer: Debit Profit and Loss Account ₦320,000₦320,000; Credit Provision for Depreciation Account ₦320,000₦320,000

Answer

Debit Profit and Loss Account ₦320,000₦320,000 and Credit Provision for Depreciation Account ₦320,000₦320,000.
To record depreciation, the net book value at the beginning of the period (₦2,000,000−₦400,000=₦1,600,000₦2,000,000 - ₦400,000 = ₦1,600,000) must be multiplied by the depreciation rate of 20%20\%, giving ₦320,000₦320,000. The accounting entry requires debiting the Profit and Loss Account (to charge the expense) and crediting the Provision for Depreciation Account (to accumulate total depreciation).

Step-by-Step Solution

1
Calculate the Net Book Value (NBV) of the motor vehicles at the start of the year.
NBV=Cost−Accumulated Depreciation=₦2,000,000−₦400,000=₦1,600,000\text{NBV} = \text{Cost} - \text{Accumulated Depreciation} = ₦2,000,000 - ₦400,000 = ₦1,600,000.
Under the reducing balance method, depreciation is calculated on the net book value, not on original cost.
2
Compute the depreciation charge for the year ended 31 December 2024.
Depreciation Charge=20%×₦1,600,000=₦320,000\text{Depreciation Charge} = 20\% \times ₦1,600,000 = ₦320,000.
Applying the 20%20\% annual rate to the starting net book value yields the current year's expense.
3
Determine the correct double entry posting.
Debit Profit and Loss Account with ₦320,000₦320,000 and Credit Provision for Depreciation Account with ₦320,000₦320,000.
Depreciation is an expense charged to Profit and Loss, and the accumulated provision for depreciation account is increased by crediting it.

Key Concept

Accounting Treatment of Depreciation under Reducing Balance Method
Question 3Question →

On 1st January 2021, Akins Commercial Enterprises purchased plant machinery for ₦4,000,000. Depreciation is charged at a rate of 20% per annum using the reducing balance method. What is the net book value of the machinery to be reported in the Statement of Financial Position as at 31st December 2023?

Show answer & explanation

Answer: ₦2,048,000

Answer

₦2,048,000
Under the reducing balance method, depreciation is computed on the net book value at the start of each accounting period. After deducting ₦800,000 in 2021, ₦640,000 in 2022, and ₦512,000 in 2023, total accumulated depreciation reaches ₦1,952,000. Subtracting this accumulated provision from the ₦4,000,000 historical cost leaves a net book value of ₦2,048,000 as at 31st December 2023.

Step-by-Step Solution

1
Calculate depreciation for Year 1 (2021)
Depreciation for 2021 = 20% of ₦4,000,000 = ₦800,000. Net Book Value at 31/12/2021 = ₦4,000,000 - ₦800,000 = ₦3,200,000.
In Year 1, reducing balance depreciation is calculated on original cost.
2
Calculate depreciation for Year 2 (2022)
Depreciation for 2022 = 20% of ₦3,200,000 = ₦640,000. Net Book Value at 31/12/2022 = ₦3,200,000 - ₦640,000 = ₦2,560,000.
Reducing balance method applies the percentage rate to the carrying amount (net book value) at the beginning of the period.
3
Calculate depreciation for Year 3 (2023)
Depreciation for 2023 = 20% of ₦2,560,000 = ₦512,000.
Apply the 20% rate to the net book value at the start of 2023.
4
Compute total accumulated depreciation and net book value as at 31st December 2023
Total Accumulated Depreciation = ₦800,000 + ₦640,000 + ₦512,000 = ₦1,952,000. Net Book Value at 31/12/2023 = ₦4,000,000 - ₦1,952,000 = ₦2,048,000.
Net Book Value equals historical cost minus total accumulated depreciation to date.

Key Concept

Accounting Treatment of Reducing Balance Depreciation
Question 4Question →

Bello & Sons Traders purchased industrial equipment for ₦5,000,000 on 1 January 2023. Depreciation is charged at a rate of 20% per annum using the reducing balance method. Which of the following represents the correct accounting journal entry to record the depreciation expense for the financial year ended 31 December 2025?

Show answer & explanation

Answer: Debit Profit and Loss Account ₦640,000; Credit Provision for Depreciation Account ₦640,000

Answer

Debit Profit and Loss Account ₦640,000; Credit Provision for Depreciation Account ₦640,000
The correct answer correctly determines the third-year depreciation under the reducing balance method. The Net Book Value at the beginning of 2025 is ₦3,200,000 (Cost of ₦5,000,000 less ₦1,000,000 for 2023 and ₦800,000 for 2024). Taking 20% of ₦3,200,000 yields ₦640,000. In accordance with double-entry principles, annual depreciation is charged by debiting the Profit and Loss Account (an expense) and crediting the Provision for Depreciation Account.

Step-by-Step Solution

1
Calculate depreciation for Year 1 (2023)
Depreciation for 2023 = 20% of ₦5,000,000 = ₦1,000,000. Net Book Value (NBV) at 31 Dec 2023 = ₦5,000,000 - ₦1,000,000 = ₦4,000,000.
Under the reducing balance method, annual depreciation is calculated as a fixed percentage of the carrying value (cost less accumulated depreciation).
2
Calculate depreciation for Year 2 (2024)
Depreciation for 2024 = 20% of ₦4,000,000 = ₦800,000. Accumulated depreciation at 31 Dec 2024 = ₦1,000,000 + ₦800,000 = ₦1,800,000. NBV at 31 Dec 2024 = ₦5,000,000 - ₦1,800,000 = ₦3,200,000.
The carrying value must be updated at the end of each period by deducting cumulative depreciation.
3
Calculate depreciation for Year 3 (2025)
Depreciation for 2025 = 20% of ₦3,200,000 = ₦640,000.
The depreciation charge for 2025 is 20% of the opening Net Book Value for 2025.
4
Formulate the accounting journal entry
Debit Profit and Loss Account ₦640,000; Credit Provision for Depreciation Account ₦640,000.
Depreciation is an operating expense (debit Profit & Loss) that increases the cumulative allowance account (credit Provision for Depreciation).

Key Concept

Accounting Treatment of Reducing Balance Depreciation and Journal Entries
Question 5Question →

On 1 January 2022, Zenith Manufacturing Enterprise purchased office equipment for ₦8,000,000₦8,000,000. The firm computes depreciation at a rate of 25%25\% per annum using the reducing balance method. If accounts are prepared annually to 31 December, which double entry correctly records the depreciation expense for the year ended 31 December 2024, and what is the accumulated balance in the Provision for Depreciation Account as at that date?

Show answer & explanation

Answer: Debit Profit and Loss Account with ₦1,125,000₦1,125,000 and Credit Provision for Depreciation Account with ₦1,125,000₦1,125,000; Closing Provision for Depreciation balance is ₦4,625,000₦4,625,000

Answer

Debit Profit and Loss Account with ₦1,125,000₦1,125,000 and Credit Provision for Depreciation Account with ₦1,125,000₦1,125,000; Closing Provision for Depreciation balance is ₦4,625,000₦4,625,000
The correct answer properly applies the reducing balance depreciation formula across all three years. In 2022, depreciation is ₦2,000,000₦2,000,000, leaving an NBV of ₦6,000,000₦6,000,000. In 2023, depreciation is ₦1,500,000₦1,500,000, leaving an NBV of ₦4,500,000₦4,500,000. In 2024, depreciation is 25%25\% of ₦4,500,000=₦1,125,000₦4,500,000 = ₦1,125,000. To record annual depreciation, the Profit and Loss Account is debited (expense) and the Provision for Depreciation Account is credited (contra-asset). Total accumulated provision at 31 December 2024 is ₦2,000,000+₦1,500,000+₦1,125,000=₦4,625,000₦2,000,000 + ₦1,500,000 + ₦1,125,000 = ₦4,625,000.

Step-by-Step Solution

1
Calculate Year 1 (2022) depreciation expense and Net Book Value (NBV) at end of 2022
Year 1 Depreciation = 25%×₦8,000,000=₦2,000,00025\% \times ₦8,000,000 = ₦2,000,000. NBV at end of 2022 = ₦8,000,000−₦2,000,000=₦6,000,000₦8,000,000 - ₦2,000,000 = ₦6,000,000.
Under the reducing balance method, the first year depreciation is calculated on original cost.
2
Calculate Year 2 (2023) depreciation expense and NBV at end of 2023
Year 2 Depreciation = 25%×₦6,000,000=₦1,500,00025\% \times ₦6,000,000 = ₦1,500,000. Accumulated Depreciation end of 2023 = ₦2,000,000+₦1,500,000=₦3,500,000₦2,000,000 + ₦1,500,000 = ₦3,500,000. NBV at end of 2023 = ₦8,000,000−₦3,500,000=₦4,500,000₦8,000,000 - ₦3,500,000 = ₦4,500,000.
Depreciation in Year 2 is based on the reduced net book value at the beginning of 2023.
3
Calculate Year 3 (2024) depreciation expense and closing Provision for Depreciation balance
Year 3 Depreciation = 25%×₦4,500,000=₦1,125,00025\% \times ₦4,500,000 = ₦1,125,000. Closing Provision for Depreciation balance = ₦3,500,000+₦1,125,000=₦4,625,000₦3,500,000 + ₦1,125,000 = ₦4,625,000.
Year 3 depreciation charge is calculated on the NBV at the start of 2024 (₦4,500,000₦4,500,000). The closing provision accumulates all three years of depreciation.
4
Determine the correct double entry posting
Debit Profit and Loss Account with ₦1,125,000₦1,125,000 and Credit Provision for Depreciation Account with ₦1,125,000₦1,125,000.
Depreciation is an expense (debited to P&L Account) and increases the accumulated allowance liability/contra-asset (credited to Provision for Depreciation Account).

Key Concept

Accounting Treatment of Reducing Balance Depreciation and Provision Account
Estimated Time:2m 0s
Question 6Question →

Kano Retail Outlets acquired office furniture costing ₦1,500,000₦1,500,000 on 1 January 2024. Depreciation is charged at 10%10\% per annum using the straight-line method. What is the accumulated balance in the Provision for Depreciation on Furniture Account as of 31 December 2025?

Show answer & explanation

Answer: 300000

Answer

The accumulated balance in the Provision for Depreciation Account as of 31 December 2025 is ₦300,000₦300,000.
The annual depreciation expense under the straight-line method is 10%×₦1,500,000=₦150,00010\% \times ₦1,500,000 = ₦150,000. Since the asset was held for two complete accounting years (from 1 January 2024 to 31 December 2025), the total accumulated provision credited to the Provision for Depreciation Account is ₦150,000×2=₦300,000₦150,000 \times 2 = ₦300,000.

Step-by-Step Solution

1
Calculate the annual depreciation expense for one year using the straight-line method
Annual Depreciation = 10%×₦1,500,000=₦150,00010\% \times ₦1,500,000 = ₦150,000
Under the straight-line method, depreciation is computed as a fixed percentage of the historical cost of the asset.
2
Multiply the annual depreciation expense by the number of accounting periods (2 years: 2024 and 2025)
Accumulated Provision for Depreciation = ₦150,000×2=₦300,000₦150,000 \times 2 = ₦300,000
The Provision for Depreciation Account accumulates total depreciation charged on the asset up to the balance sheet date.

Key Concept

Accounting Treatment of Provision for Depreciation
Estimated Time:45s
Question 7Question →

The trial balance of Danladi Commercial Enterprise as at 31 December 2025 showed Motor Vehicles at cost of ₦15,000,000₦15,000,000 and Provision for Depreciation on Motor Vehicles of ₦5,400,000₦5,400,000.

On 30 June 2025, a vehicle that had been purchased on 1 January 2023 for ₦3,000,000₦3,000,000 was sold for ₦1,600,000₦1,600,000.

The policy of the enterprise is to provide depreciation on motor vehicles at 20%20\% per annum using the reducing balance method, charging a full year's depreciation in the year of purchase and no depreciation in the year of disposal.

What is the balance of the Provision for Depreciation on Motor Vehicles Account to be presented in the Statement of Financial Position as at 31 December 2025?

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Answer: ₦5,856,000

Answer

The correct balance of the Provision for Depreciation on Motor Vehicles Account as at 31 December 2025 is ₦5,856,000.
The correct balance of ₦5,856,000 is derived by first removing the ₦1,080,000 accumulated depreciation of the sold vehicle from the opening provision of ₦5,400,000, leaving ₦4,320,000. Next, the net book value of the remaining vehicles (₦12,000,000 cost minus ₦4,320,000 accumulated depreciation) is ₦7,680,000. Applying the 20% reducing balance rate yields a current year depreciation charge of ₦1,536,000. Adding this charge to ₦4,320,000 gives a closing provision balance of ₦5,856,000.

Step-by-Step Solution

1
Calculate accumulated depreciation on the disposed vehicle up to 31 December 2024
Year 2023 depreciation = 20%×₦3,000,000=₦600,00020\% \times ₦3,000,000 = ₦600,000 (Net Book Value = ₦2,400,000₦2,400,000). Year 2024 depreciation = 20%×₦2,400,000=₦480,00020\% \times ₦2,400,000 = ₦480,000. Total accumulated depreciation on disposed vehicle = ₦600,000+₦480,000=₦1,080,000₦600,000 + ₦480,000 = ₦1,080,000.
Because no depreciation is charged in the year of disposal, accumulated depreciation covers only 2023 and 2024.
2
Remove the accumulated depreciation of the disposed vehicle from the opening provision
Remaining opening provision balance = ₦5,400,000−₦1,080,000=₦4,320,000₦5,400,000 - ₦1,080,000 = ₦4,320,000.
When an asset is sold, its total accumulated depreciation must be debited to the Provision for Depreciation Account and credited to the Asset Disposal Account.
3
Determine the Net Book Value (NBV) of remaining vehicles at 1 January 2025
Cost of remaining vehicles = ₦15,000,000−₦3,000,000=₦12,000,000₦15,000,000 - ₦3,000,000 = ₦12,000,000. NBV of remaining vehicles = ₦12,000,000−₦4,320,000=₦7,680,000₦12,000,000 - ₦4,320,000 = ₦7,680,000.
Depreciation under the reducing balance method must be calculated on the net book value of active assets at the start of the accounting period.
4
Calculate 2025 depreciation expense and closing provision balance
Depreciation for 2025 = 20%×₦7,680,000=₦1,536,00020\% \times ₦7,680,000 = ₦1,536,000. Closing Provision for Depreciation = ₦4,320,000+₦1,536,000=₦5,856,000₦4,320,000 + ₦1,536,000 = ₦5,856,000.
The current year's depreciation is credited to the Provision for Depreciation Account to yield the updated closing balance.

Key Concept

Accounting Treatment of Asset Disposal and Provision for Depreciation under Reducing Balance Method
Question 8Question →

On 1 January 2023, Calabar Haulage Enterprise purchased a delivery van for ₦6,000,000₦6,000,000. Depreciation is charged at 20%20\% per annum using the reducing balance method. What is the journal entry required to record the depreciation expense for the year ended 31 December 2024?

Show answer & explanation

Answer: Debit Profit and Loss Account ₦960,000₦960,000; Credit Provision for Depreciation Account ₦960,000₦960,000

Answer

Debit Profit and Loss Account ₦960,000₦960,000 and Credit Provision for Depreciation Account ₦960,000₦960,000
The correct answer properly applies the reducing balance depreciation method for the second year. Depreciation for 2023 was ₦1,200,000₦1,200,000, leaving a book value of ₦4,800,000₦4,800,000. For 2024, 20%20\% of ₦4,800,000₦4,800,000 yields ₦960,000₦960,000. To record this expense in the journal, the Profit and Loss Account is debited with ₦960,000₦960,000 and the Provision for Depreciation Account is credited with ₦960,000₦960,000.

Step-by-Step Solution

1
Calculate depreciation for Year 1 (2023)
Depreciation for 2023 = 20%×₦6,000,000=₦1,200,00020\% \times ₦6,000,000 = ₦1,200,000
In the first year of ownership, the reducing balance method applies the depreciation percentage to the initial cost.
2
Calculate the Net Book Value at the beginning of Year 2 (1 January 2024)
Net Book Value = ₦6,000,000−₦1,200,000=₦4,800,000₦6,000,000 - ₦1,200,000 = ₦4,800,000
Under the reducing balance method, annual depreciation is computed on the net book value (Cost minus Accumulated Depreciation).
3
Calculate depreciation for Year 2 (2024)
Depreciation for 2024 = 20%×₦4,800,000=₦960,00020\% \times ₦4,800,000 = ₦960,000
Applying the rate of 20%20\% to the updated net book value of ₦4,800,000₦4,800,000 gives the expense for 2024.
4
Determine the proper double-entry accounting treatment
Debit Profit and Loss Account ₦960,000₦960,000; Credit Provision for Depreciation Account ₦960,000₦960,000
Depreciation is an expense, so it is debited to the Profit and Loss Account and credited to the Provision for Depreciation Account to accumulate total depreciation.

Key Concept

Accounting Treatment of Depreciation under the Reducing Balance Method
Question 9Question →

On 1 January 2023, Ibadan Logistics Enterprise acquired plant machinery costing ₦10,000,000₦10,000,000. The policy of the enterprise is to provide for depreciation at a rate of 20%20\% per annum using the reducing balance method. Calculate the credit balance of the Provision for Depreciation Account as at 31 December 2024.

Show answer & explanation

Answer: 3600000

Answer

The credit balance of the Provision for Depreciation Account as at 31 December 2024 is ₦3,600,000.
The Provision for Depreciation Account represents the cumulative total of all depreciation charged against an asset. For 2023, the depreciation is 20%20\% of ₦10,000,000=₦2,000,000₦10,000,000 = ₦2,000,000. For 2024, using the reducing balance method, the charge is 20%20\% of (₦10,000,000−₦2,000,000)=₦1,600,000(₦10,000,000 - ₦2,000,000) = ₦1,600,000. Adding these two charges yields a total credit balance of ₦3,600,000₦3,600,000 as at 31 December 2024.

Step-by-Step Solution

1
Calculate depreciation for Year 1 (2023)
₦2,000,000
Depreciation under reducing balance in the first year is based on initial cost: 20%×₦10,000,000=₦2,000,00020\% \times ₦10,000,000 = ₦2,000,000.
2
Determine Net Book Value at the end of Year 1
₦8,000,000
Net Book Value is Cost minus Accumulated Depreciation: ₦10,000,000−₦2,000,000=₦8,000,000₦10,000,000 - ₦2,000,000 = ₦8,000,000.
3
Calculate depreciation for Year 2 (2024)
₦1,600,000
Depreciation in Year 2 applies the rate to the reduced book value: 20%×₦8,000,000=₦1,600,00020\% \times ₦8,000,000 = ₦1,600,000.
4
Sum total provision for depreciation through 31 December 2024
₦3,600,000
The Provision for Depreciation Account accumulates total depreciation charged across all years (₦2,000,000+₦1,600,000=₦3,600,000₦2,000,000 + ₦1,600,000 = ₦3,600,000).

Key Concept

Accounting Treatment of Provision for Depreciation using Reducing Balance Method
Question 10Question →

On 1 January 2024, Aba Commercial Ventures had a Machinery account balance at cost of ₦8,000,000₦8,000,000 and a Provision for Depreciation on Machinery credit balance of ₦1,200,000₦1,200,000. Depreciation is charged annually at 15%15\% using the reducing balance method. What is the total balance of the Provision for Depreciation on Machinery account to be carried forward as at 31 December 2024?

Show answer & explanation

Answer: 2220000

Answer

The total balance of the Provision for Depreciation on Machinery account as at 31 December 2024 is ₦2,220,000₦2,220,000.
To determine the closing Provision for Depreciation balance on 31 December 2024 under the reducing balance method, first compute the opening net book value by subtracting opening provision from cost (₦8,000,000−₦1,200,000=₦6,800,000₦8,000,000 - ₦1,200,000 = ₦6,800,000). Next, calculate the 2024 depreciation charge of 15%15\% on ₦6,800,000₦6,800,000, which equals ₦1,020,000₦1,020,000. Finally, add this current charge to the opening provision of ₦1,200,000₦1,200,000 to obtain the closing balance of ₦2,220,000₦2,220,000.

Step-by-Step Solution

1
Determine the opening net book value of the machinery on 1 January 2024.
Net Book Value = ₦8,000,000−₦1,200,000=₦6,800,000₦8,000,000 - ₦1,200,000 = ₦6,800,000.
Under the reducing balance method, annual depreciation is calculated on the net book value (Cost minus Accumulated Depreciation) at the start of the period.
2
Calculate the current year's depreciation charge for 2024.
Depreciation for 2024 = 15%×₦6,800,000=₦1,020,00015\% \times ₦6,800,000 = ₦1,020,000.
Applying the fixed rate of 15%15\% to the net book value yields the annual provision expense.
3
Determine the accumulated Provision for Depreciation balance at year-end.
Closing Provision = ₦1,200,000+₦1,020,000=₦2,220,000₦1,200,000 + ₦1,020,000 = ₦2,220,000.
The provision for depreciation account accumulates total depreciation over time, so the current year expense is added to the opening balance.

Key Concept

Accounting Treatment of Provision for Depreciation under the Reducing Balance Method
Question 11Question →

Match each accounting transaction or statement item regarding depreciation with its corresponding ledger entry or financial statement treatment.

Click a left item, then click its matching right item

Items

Annual depreciation charge for the accounting period
Reduction in the required provision for depreciation at year-end
Transfer of accumulated depreciation on an asset disposed of
Presentation of accumulated depreciation in the Statement of Financial Position

Matches

Show answer & explanation

Answer

Annual depreciation charge matches Debit Profit and Loss Account and Credit Provision for Depreciation Account; Reduction in required provision matches Debit Provision for Depreciation Account and Credit Profit and Loss Account; Transfer of accumulated depreciation on asset disposed matches Debit Provision for Depreciation Account and Credit Asset Disposal Account; Presentation of accumulated depreciation matches Deduction from historical cost of non-current assets under Fixed Assets.
Each depreciation item is correctly paired with its accounting treatment: charging annual depreciation requires debiting Profit and Loss and crediting Provision for Depreciation; reducing provision requires debiting Provision for Depreciation and crediting Profit and Loss; removing accumulated depreciation on asset disposal requires debiting Provision for Depreciation and crediting Asset Disposal; and presenting accumulated depreciation requires deducting it from historical cost on the Statement of Financial Position.

Step-by-Step Solution

1
Determine double entry for annual depreciation expense
Debit Profit and Loss Account, Credit Provision for Depreciation Account
Depreciation is an expense reduced from profits for the period while building up the accumulated provision.
2
Determine double entry for a reduction in provision for depreciation
Debit Provision for Depreciation Account, Credit Profit and Loss Account
Excess provision no longer required is credited back to the Profit and Loss Account as gains/income.
3
Determine double entry to remove accumulated depreciation on asset disposal
Debit Provision for Depreciation Account, Credit Asset Disposal Account
Accumulated depreciation on the sold asset must be transferred out of the provision account into the disposal account.
4
Identify financial statement presentation of total accumulated depreciation
Deduction from historical cost under non-current assets
Net book value is calculated by subtracting total accumulated depreciation from the original asset cost.

Key Concept

Accounting Treatment of Depreciation and Provision for Depreciation
Accounting Treatment of Depreciation and Provision for Depreciation Practice Questions — JAMB UTME | Examkin