Explain depreciate non-current assets, Financial Accounting

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Question:

Lucy Kim is in the car hire business. The following information came from her Fixed Asset Register on 31 December 2009:

1466_Depreciate non-current assets.png

On 31 March 2009, she sold the car which had been bought on 1 July 2007 for Rs 1 950 000, for the sum of Rs 1 137 500.

All acquisitions were paid for on the date of purchase by cheque, except for the 1 August 2009 car which was bought on credit from Car Ltd. All Vehicles are depreciated at 20% per annum using the straight line method and is time apportioned for the number of months of use.

Required:

A. For the year ended 31 December 2009 draw up:

i. The Vehicle Account
ii. The Provision for Depreciation Account
iii. The Disposal Account and
iv. The Balance Sheet extract for the years 2007, 2008 and 2009.

B. Briefly define the term ‘depreciation' and explain why there is a need to depreciate non-current assets?


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