Question

The equipment is expected to work 90,000 hours during its 5 year useful life with a salvage value of $4,700. The productivity level is as follows:

	Year 1 - 30,000 hours; Year 2 - 25,000 hours, Year 3 - 15,000 hours, Year 4 - 12,000 hours, Year 5 - 8,000 hours
	Record the depreciate expense for year 3
	Prepare the partial balance sheet at the end of year 3
	The truck was disposed of on January 1, Year 5. Prepare the journal entry to record the disposal of the truck
	Equipment/Machine
	Purchase Price	45,000
	Sales Taxes	3,900
	Freight Insurance	600
	Shipping/transport costs	1,700
	Installation and Testing	1,500
	Training costs	2,000
	Total Acquisition cost	54,700

Answer 1

As per Ind AS 16 an item of property, plant and equipment should initially be recorded at cost. Cost includes all costs necessary to bring the asset to working condition for its intended use. This would include not only its original purchase price but also costs of site preparation, delivery and handling, installation, related professional fees for architects and engineers, and the estimated cost of dismantling and removing the asset and restoring the site.

Costs that do not provide future economic benefits are expensed in the period incurred. The initial training costs are not necessary to get the asset ready for use. Rather, the training costs are necessary to get the employees ready to use the asset. Thus, the training costs are immediately expensed.

Total Acquisition Cost will be:

Purchase Price	45000
Sales Taxes	3900
Freight Insurance	600
Shipping/transport costs	1700
Installation and Testing	1500
Total Acquisition cost	52700

Depreciable Value = Acquisition cost - Salvage value at end

= 52700 - 4700

= 48000

Total Hours worked by Machine in its life time = 90000 hours

Depreciation expenses for Year 3 :

Year 3 prodution unit = 15000 Hours

Depreciation will be = Depreciable amount * Hours worked / Total hours

= 48000*15000/90000

= $ 80000

Balance Sheet at end of Year 3

Machine A/c = 52700

Accumulated Depreciation = 37,333.33

Journal entry for disposal of Asset:

Accumulated Depreciation A/c	48000
Cash/Bank/Party A/c	4700
To Asset A/c		52700
(Being Asset sold and Accumulated depreciation a/c adjusted)

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