martin and company purchased a fixed asset on 1/4/2010 for £250000.depreciation is o be provided at 10% annually according to the straight line method. the books are closed on 31wst march every year. prepare fixed asset account and depreciation account for the first three years
To prepare the fixed asset account and depreciation account for the first three years, we need to calculate the annual depreciation expense and update the account balances accordingly.
First, let's calculate the annual depreciation expense using the straight-line method. Straight-line depreciation distributes the cost evenly over the useful life of the asset.
The formula to calculate the annual depreciation expense is:
Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life
In this case:
Cost of Asset = £250,000
Residual Value = 0 (since there is no residual value mentioned)
Useful Life = 10 years (since it is not mentioned, I will assume a useful life of 10 years)
Annual Depreciation Expense = (250,000 - 0) / 10 = £25,000
Now, let's prepare the Fixed Asset Account and Depreciation Account for the first three years:
1. Fixed Asset Account:
Year 1:
Date | Description | Debit | Credit | Balance
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1/4/2010 | Asset Purchase | £250,000 | | £250,000
Year 2:
Date | Description | Debit | Credit | Balance
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31/3/2011 | Depreciation | £25,000 | | £225,000
Year 3:
Date | Description | Debit | Credit | Balance
--------------------------------------------------------------------
31/3/2012 | Depreciation | £25,000 | | £200,000
2. Depreciation Account:
Year 1:
Date | Description | Debit | Credit | Balance
--------------------------------------------------------------------
| £25,000 | £25,000
Year 2:
Date | Description | Debit | Credit | Balance
--------------------------------------------------------------------
31/3/2011 | Depreciation | £25,000 | | £50,000
Year 3:
Date | Description | Debit | Credit | Balance
--------------------------------------------------------------------
31/3/2012 | Depreciation | £25,000 | | £75,000
Please note that the Fixed Asset Account shows the historical cost of the asset, while the Depreciation Account accumulates the depreciation expense over time.