Question

6:31 X BUSI 1043 Final Exam Questions - Vers... Lululemon purchased a new plant for their shoes production division on July 1, 2019. Lululemon paid $5,000,000 for the production plant. It is a package purchase, which includes land. building and equipment. Currently, the land can be sold at $2,000,000, the building at 2,500,000 and the equipment at $1,000,000 in the market. The equipment has an estimated salvage of $20,000 and an expected useful life of 8 years or 500,000 units. (30 marks) (Long Term Assets) Required: Prepare the journal entry for the purchase of cach individual assets on July 1, 2019 b. Given the equipment produced 20,000 units in 2019, prepare the journal entry for the depreciation if is the carrying value of the new equipment under each of the following methods for the equipment: straight-line units-of-production double-declining-balance

Answer 1

Answet to a)
Journal Entry
		Debit (Amount in $)	Credit (Amount in $)
1st July 2019	Production Plant                Dr. (Purchase A/c)	50,00,000
	To Cash (Purchase Production Plan)		50,00,000
1st July 2019	Bank A/c Dr.	55,00,000
	To Land		20,00,000
	To Building		25,00,000
	To Equipment		10,00,000
	(Sale of Land, Building & Equipment)

Answet to b)
Journal Entry for Production of 20,000 Units
i) Straight Line Method =
Yearly Depriciation = (Original Cost - Estimated Scrap Value) / Estimate age of asset
Yearly Depriciation for 5,00,000 Units=	(10,00,000 - 20,000) / 8	(10,00,000 - 20,000) / 8	$                   1,22,500
Yearly Depriciation for 20,000 Units=	(1,22,500 X 20,000) / 5,00,000		$                         4,900
		Debit (Amount in $)	Credit (Amount in $)
	Depriciation A/c Debit	$                                              4,900
	To Equipment		$                         4,900
ii) Unit of Production
Depriciation = (Asset Cost - Asset Salvage Value) / Total Unit of Production
Hence Depriciation for 1 Unit =	(10,00,000 - 20,000) / 5,00,000	1.96
Hence Depriciation for 20,000 Units =	20,000 X 1.96	$                      39,200
		Debit (Amount in $)	Credit (Amount in $)
	Depriciation A/c Debit	$                                            39,200
	To Equipment		$                      39,200
iii) Double Decline Balance
Annual Depriciation = (Net Book Value) X (2 / Useful Life in Years)
Annual Depriciation =	(9,80,000) X ( 2 / 8 )		$                   2,45,000
Annual Depriciation for 20,000 Units		(2,45,000 X 20,000) / 5,00,000	$                         9,800
		Debit (Amount in $)	Credit (Amount in $)
	Depriciation A/c Debit	9,800
	To Equipment		9,800