Question

Q1. (25 marks) Danish Inc purchased a computer on January 1, 2019, for $1,600,000. The straight-line method of depreciation was used, based on an expected life of 6 years and a residual value of $130,000. Prepare the journal entries to record depreciation for the first 6 months of 2021 and the sale of the computer on July 1, 2021, for $1,000,000.

Answer 1

Depreciation a/c. Dr . 1,22,500

To computer a/c 1, 22,500

(Being depreciation charge for first 6 month of 2021)

Bank a/c Dr. 10,00,000

To computer a/c 9,87,500

To profit on sale of computer 12,500

(Being computer sold on July 1,2021)

Working:-

Calculation of cost of computer

Cost of computer :- 16,00,000

Scrap value :- 1,30,000

Life :- 6 years

Depriciation :- (16,00,000- 1,30,000)/ 6

= 2,45,000 depriciation upto sale:- (254000+245000+122500)

= 6,12,500

Value of computer after depriciation :- 16,00,000- 6,12,500 = 9,87,500