Reference no: EM132524833

On 31 December 2018 the following extract was taken from the balance sheet of BBD.

                            Non-current assets              Cost Accumulated depreciation                   NBV

                                             K                                                 K                                                           K

Equipment                             60 000                        24 000                                       36 000

Office Computers                    8 000                         5 600                                            2 400

Total                                    68 000                         29 600                                         38 400

The following transactions took place during the year ended 31 December 2019:

1. On 31 May 2019, equipment purchased on 1 August 2016, at a cost of K28 000, was sold for K10 000. Payment was received by cheque.

2. On 1 June 2019, new equipment was purchased at a cost of K35 000.

3. On 20 June 2019, office computers were purchased for K600. BBD has the following depreciation policy:

1. Equipment is depreciated at the rate of 20% per annum using the straight-line method.
2. Office computers are depreciated at the rate of 25% per annum using the diminishing (reducing) balance method.
3. A full year's depreciation is charged on equipment and office computers in the year of purchase.
4. No depreciation is charged on equipment in the year of sale.

Required:

Question (a) Explain the term depreciation. 

Question (b) State four causes of depreciation.

Question (c) State the advantages of using the straight-line method of depreciation

Question (d) Prepare the following ledger accounts for the year ended 31 December 2019:

(i) Provision for depreciation of equipment account

(ii) Equipment disposal account

Question (e) Calculate the Net Book Value (NBV) of Equipment and Office Computers as at 31 December 2019.