Question

On March 10, 2022, Lost World Company sells equipment that it purchased for $192,000 on August 20, 2015. It was originally estimated that the equipment would have a life of 12 years and a salvage value of $16,800 at the end of that time, and depreciation has been computed on that basis. The company uses the straight-line method of depreciation. Following are the assumptions with respect to partial periods:

1. Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for base and record depreciation through March 9, 2022.)

2. Depreciation is computed for the full year on the January 1 balance in the asset account.

3. Depreciation is computed for the full year on the December 31 balance in the asset account.

4. Depreciation for one-half year is charged on plant assets acquired or disposed of during the year.

5. Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal.

6. Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.)

Briefly evaluate the methods above, considering them from the point of view of basic accounting theory as well as simplicity of application.

Answer 1

Answer:

1. It is only depreciated for 133 in 2015 for the amount of time the equipment was owned. 2016-2021 the equipment was owned for those 6 complete years so, therefore, it was depreciated at full 365 days year for 6 years. 2022 it was still depreciated full year but was sold in March.

2. A full year of depreciation on the equipment is from 2016-2021.

3. In 2012 it was the full year as well as from 2016-2021, but not for 2022 as the equipment was sold.

4. The half years are 2012 and 2019 this is because it was purchased in August of 2015 and sold in March of 2022.

5. 2015 only has 4 months out of the 12 months were depreciated on the equipment from the time of purchase in August 2015. In 2022 had 3 months of depreciation as the equipment was sold in March.

6. Depreciation is only charged from 2016-2021 as these are the full year of use on the equipment.