Question

On 1 November 20.6, Hey Dealers bought a second-hand motor vehicle for a cash amount of
R224 579 to be used in the business. On 31 August 20.8, Hey Dealers sold the second-hand
motor vehicle to his friend for a cash amount of R155 000 and bought a new motor vehicle for a
cash price of R450 780 on the same day. It is the accounting policy for Hey Dealers to provide
for depreciation on motor vehicles at 20% per annum on the diminishing-balance method.
Round your answer off to the nearest Rand. The financial year-end of Hey Dealers is at
30 November of each year

8. What is the carrying amount of motor vehicles at the end of the financial year,
30 November 20.8?
(1) R360 624
(2) R428 241
(3) R420 728
(4) R510 793
(5) R150 169

Answer 1

Purchase price of the second hand motor vehicle = R450780

Time = 3 months( Sept 2018 - Nov 2018 )

The amount of the previous motor vehicle does not affect the present one since they are two different assets and when the previous motor vehicle is sold at a profit, it will be recognised in the Income Statement.

Depreciation on the second hand motor vehicle = Cost of the asset * Rate of Depreciation* Time = 450780*20%*3/12= R22539

Therefore, the carrying value of the motor vehicle = Cost - Depreciation=R450780-22539 = R 428241

Hence, the answe is option b.