Question

Give an example journal entry for each of the following transactions recorded in proper general journal form, including the AT, AI,Lt,LT, OEJOEf arrows. Cash purchase of a long-term asset that includes an asset retirement obligation, One self-constructed asset that will not be completed by the end of the year which includes at least 2 expenditures during the fiscal year, One impairment of existing goodwill or another long-term asset that is held and used, Depreciation for each remaining quarter - you pick a method as if it had been in place and record entries for 2nd, 3rd, and 4th quarter. Use an appropriate existing expense account or add a depreciation expense account late your provide description of the transaction that provides enough detail to ers. For example, with impairments this would mean that you have to provide all of the information needed to recalculate the impairment you record +

Answer 1

Ans-(a)

Illustration:

A drilling equipment purchased for $ 100 million including installation.This has a life of 10 years.The decommisioning costs at that time will be $ 10 million.Discount rate assumed as 8%.Inflation factor ignored

Journal Entries:

Present value of decommisioning cost = (10*10^6) / (1+8%)^10 = 4631935

DETAILS Drilling Equipment Cash Asset Retirement Obligation (Asset and retirement obligation accounted) DEBIT CREDIT 104631935 A 100000000A 4631935L 1 10463193 Depreciation Expense Accumulated Depreciation (SLN method depreciation) OE 10463193 L 1 370555 Finance Cost Asset Retirement Obligation (8% of 4631935 accounted) OE 370555L 1

Ans-(b)

Illustration:

X and Co has decided to build a warehouse facility for its business.The year has ended and work in still not complte.During the year following costs were incurred in constructing the warehouse

Materials - $2,000,000

Labour - $ 1,500,000

Journal:

DETAILS Materials Consumed Inventory DEBIT CREDIT 2000000 OET 2000000 A 1500000 Labour Charges Cash OEI 1500000 A 3500000 Warehouse Under Construction Materials Consumed Labour Charges А. 2000000 OE 1500000 OE

Ans-(c )

The carrying value of Building in books of X and Co is $ 1,000,000.Area near to the building has been designated by Government as a waste dump area.On account of this the Fair Value of the Building is $ 800,000

Journal:

DETAILS Loss on Impairment Building DEBIT CREDIT 200000 OEI 200000 A

Ans-(d)

Y & Co procured machine by on 1 January,20xx for $ 500,000.The estimated life of machine is 10 years.At the end of the life salvage value will be zero.The company follows straight line method of depreciation.

NOTE:

Depreciation per year = 500000/10 = 50000

Per Quarter Depreciation = 50000/4 = 12500

Depreciation Journal for Q2 , Q3 and Q4 of year 20xx will be as hereunder :

DETAILS Depreciation Expense - Machine Accumulated Depreciation - Machine (Depreciation for Q2 accounted) DEBIT CREDIT 12500 OEI 12500L 12500 Depreciation Expense - Machine Accumulated Depreciation - Machine (Depreciation for Q3 accounted) OET 12500L 12500 ОЕ Depreciation Expense - Machine Accumulated Depreciation - Machine (Depreciation for Q4 accounted) 12500L