ABC Co purchases a motor vehicle on 30 September 20X4 for $3,750 on credit. ABC Co has a policy of depreciating motor vehicles using the reducing balance method at 20% per annum, pro rata in the years of purchase and sale.
What are the correct ledger entries to record the purchase of the vehicle at 30 September 20X4 and what is the depreciation charge for the year ended 31 December 20X4?
Answer
To record the purchase of the asset:
| Dr. Non-current assets – cost | $3,750 |
| Cr. Payables | $3,750 |
Depreciation charge is 3,750 x 20% x 3/12 = $187.5