Question

Assume that on Jan. 1, 2017, Nissan Company purchases fixtures for $ 8300 cash, expecting the fixtures to remain in service for five years. Nissan has depreciated the fixtures on a double-declining method basis, with $ 1700 estimated residual value, on October 31, 2018, Nissan sold the fixtures for $ 2300 cash. Required: 1. Record the depreciation expense on the fixtures for 2018. 2. Record the sale of the fixtures. The answer:

Answer 1

IN THE BOOK OF NISSAN COMPANY

Journal Entries

Date	Particulars	Debit($)	Credit($)
31st December 2017	Depreciation a/c...............................................Dr. To Fixtures a/c   (Being depreciation for the year charged to fixture account)	2639.4	2639.4
31st October 2017	Depreciation a/c...............................................Dr. To Fixtures a/c   (Being depreciation for the 10 months charged to fixture account)	1500	1500
31st October 2017	Bank a/c................................................................Dr. Loss on sale of Fixture a/c....................................Dr. To Fixtures a/c (Being fixtures sold at a loss of 1860.6)	2300 1860.6	4160.6

WORKING NOTES

1. In the Double declining balance method, "Double" means 200% of the straight-line rate of depreciation, and "Declining balance" means the book value or carrying value of the concerned asset. It means that 200% of the straight-line rate will be applied to the book value of assets to calculate depreciation.

In the given question, the purchase price of the fixture is $8300 and the expected life of the fixture is 5 years. Hence, the straight-line rate of interest will be as follows

Depreciation per year(straight-line basis) = $8300(Cost) - $1700(estimated residual value) / 5 years

= $1320

Rate of depreciation(straight-line basis) = $1320/$8300 X 100 = 15.90 % or 16%(approx)

Rate of appreciation(double-declining balance method) = 15.9 X 2 = 31.8% per annum

2. Depreciation on the fixture for the first year ending 31st December 2017

= $8300 X 31.8% = $2639.4

3. Book value of fixture on 31st December 2017

= $8300 - $ 2639.4

=$5660.6

4. Depreciation on the fixture before the sale on 31 October 2017(FOR 10 MONTHS ONLY)

= $5660.6 X 31.8% X 10/12

= $1500

5. Book value of fixture on 31st October 2018

= $5660.6 - $1500

= $4160.6

6. Calculation of Profit or Loss on sale of fixture on 31st October, 2018

= Sale value - Book Value

= $2300 - $4160.6

= $1860.6(LOSS ON SALE)

Sorry for spelling mistake or omission(if any) and ALL THE BEST