Question

[The following information applies to the questions displayed below. Onslow Co. purchases a used machine for $240,000 cash on January 2 and readies it for use the next day at a $8,000 cost. On January 3, it is installed on a required operating platform costing $1,600, and it is further readied for operations, The company predicts the machine will be used for six years and have a $28,800 salvage value. Depreciation is to be charged on a straight-line basis. On December 31, at the end of its fifth year in operations, it is disposed of.

Answer 1

Cost of the fixed assets consists of the following: i) its purchase price, import duty and non refundable taxes. Any trade discount and rebate should be excluded ii) cost directly attributable for bringing the assets their present location and condition which is necessary for the operation of the assets Some examples of the directly attributable costs are delivery and handling cost, installation and assembly cost, site preparation cost, testing cost incurred ensure assets is properly functioning or not. Step 1 Calculation of Cost of Machinery Purchase price of Machinery Add: Additional cost Add: Operating Platform Total Cost of Machine $240,000 $8,000 $1,600 $249,600 Date Jan 2 General Journal Debit Credit Machinery $240,000 $240,000 Cash (To record purchase of machine) Machinery Jan 3 S8,000 $8,000 Cash (To record capitalisation of expesne) Machinery Jan 3 $1,600 $1,600 Cash (To record capitalisation of expesne)

Recording of Depreciation Step 1 Straight Line Depreciation (Cost Salvage)/Useful life Particulars Cost Machinery $249,600 $28,800 Salvage Value Useful Life 6 Depreciation [IS249600-$28800)/6] $36,800 Step 2 Depreciation Schedule Closing Book Accumulated Opening Book Value Depreciation Year Depreciation $36,800 $73,600 $110,400 $147,200 $184,000 Value $249,600 $212,800 $176,000 $139,200 $102,400 $36,800 $36,800 $36,800 $36,800 $36,800 $212,800 $176,000 $139,200 $102,400 $65,600 1 2 4 Journal Entry General Journal Date Dec 31 1st yr Depreciation Debit Credit $36,800 Accumulated Depreciation Machinery (To record depreciation expense) $36,800 Dec 31 5th yr Depreciation $36,800 Accumulated Depreciation Machinery (To record depreciation expense) $36,800

Ans 3 Journal Entry Date General Journal Debit Credit Dec 31 5th yr Case a Accumulated Depreciation -machinery $184,000 $25,000 $40,600 Cash Loss on sale of Machinery Machinery $249,600 (To record sale of machinery) Dec 31 5th yr Case b Accumulated Depreciation machinery $184,000 $100,000 Cash Gain on sale of Machinery $34,400 $249,600 Machinery (To record sale of machinery) Dec 31 5th yr Case c Accumulated Depreciation machinery $184,000 S35,500 $30,100 Cash Loss by fire Machinery (To record loss on destructon of machiney by fire) $249,600