Question

A CAPCHSC ICICI SO PO units produced was 71,000 in 2016 and 118,600 in 2017. (d) In this situation, what factors should the company consider in determining which depreciation method it should use? ciation answer 2) AP E9-5 On April 22, 2016, Sandstone Enterprises purchased equipment for $129,200. The company expects to use the equipment for 12,000 working hours during its four-year life and that it will have a residual value of $14,000, Sandstone has a December 31 year end and pro-rates depreciation to the nearest month. The actual machine usage was: 1,900 hours in 2016; 2,800 hours in 2017; 3,700 hours in 2018; 2,700 hours in 2019; and 1,100 hours in 2020, Instructions (a) Prepare a depreciation schedule for the life of the asset under each of the following methods: 1. straight-line 2. double diminishing-balance, and 3. units-of-production. (b) Which method results in the lowest profit over the life of the asset? (C) Which method results in the least cash used for depreciation over the life of the asset? ciation and LO 3) AP E9-6 Bisor Company has a December 31 year end and uses straight-line depreciation for all property, plant, and equipment. On July 1, 2015, the company purchased equipment for $500,000. The equipment had an expected use- ful life of 10 years and no residual value. The company uses the nearest month method for partial year depreciation On December 31, 2016, after recording annual depreciation, Bisor reviewed its equipment for possible impairment. Bisor determined that the equipment has a recoverable amount of $325,000. It is not known if the recoverable amount will increase or decrease in the future, Instructions (a) Prepare journal entries to record the purchase of the asset on July 1, 2015, and to record depreciation expense on December 31, 2015, and December 31, 2016. (b) Determine if there is an impairment loss at December 31, 2016, and if there is, prepare a journal entry to

Answer 1

Solution (a) 1 Purchase price of Equipment Residual Value Life of Asset $ $ 1,29,200 14,000 4 years Depreciation on Equipment (Cost of Asset - Residual Value ) / life of Asset ($129,200 - $14,000) / 4 $ 1,15,200 /4 $ 28,800 per year Depreciation for 2016 will be calculated for 9 months (April - Dec) In the year 2020, part of depreciation remaining will be amortized Depreciation Schedule - Straight line method Year 2016 2017 2018 2019 2020 Opening Depreciation Closing Value (a) (b) Value (a-b) $1,29,200 $ 21,600 $ 1,07,600 $1,07,600 $ 28,800 $ 78,800 $ 78,800 $ 28,800 $ 50,000 $ 50,000 $ 28,800 $ 21,200 $ 21,200 $ 7,200 $ 14,000 $ 1,15,200 Solution (a) 2 Purchase price of Equipment Residual Value Life of Asset Depreciation rate $ 1,29,200 $ 14,000 4 years 1/life of asset x 100 1/4 x 100 25% x 2 25% Rate of Depreciation for Double decline = 50% Depreciation Schedule - Double Dimnishing Opening Depreciation Closing Year Value (a) (b=a x 50%) Value (a-b) 2016 $1,29,200 $ 48,450 $ 80,750 $ 80,750 $ 40,375 $ 40,375 2018 $ 40,375 $ 20,188 $ 20,188 2019 $ 20,188 $ 10,094 $ 10,094 2020 $ 10,094 $ 1,262 $ 8,832 $ 1,20,368 Depreciation for 2016 = $129200 x 50% x 9/12 = Depreciation for 2020 = $10094 x 50% x 3/12 = $ 48,450 $ 1,262

Solution (a) 3 Purchase price of Equipment Residual Value Life of Asset Depreciation per hour $ 1,29,200 $ 14,000 12000 working hours (Cost of Asset - Residual Value ) / working life ($129200 - $14000) / 12000 $ 1,15,200 /12000 $ 9.60 Depreciation Schedule - units of production method Closing Opening Year Hours Value (a) Depreciation (hours x $9.6) Value (a- b) 2016 1900 $ 1,29,200 1900 x $9.6 = $ 18,240 $1,10,960 2017 2800 $ 1,10,960 2800 x $9.65 $ 26,880 $ 84,080 2018 3700 $ 84,080 3700 x $9.65 $ 35,520 $ 48,560 2019 2700 $ 48,560 2700 x $9.65 $ 25,920 $ 22,640 2020 1100 $ 22,640 1100 x $9.6= $ 10,560 $ 12,080 $ 1,17,120 Solution (b) The method - Double diminishing balance method results in least profit during the life of asset as it charges more depreciation than other methods Solution (c) Straight line method of depreciation uses least depreciation over the life of asset However, Depreciation is a non cash expenditure.

In case of any issues or doubts, Please comment below