Question

Ocean Fishers Ltd had a 22-foot fishing boat with an inboard motor that was purchased on April 9, 2012, for $86,500. The PPE subledger shows the following information regarding the boat: 
 

Fishing Boat – 22 Foot With Inboard Motor:

Component

Date of Purchase

Deprec. Method

Cost

Est. Residual

Est.Life

Fibreglass body

Apr. 9/12

SL

$

25,500

$

6,000

15 yr

Motor

Apr. 9/12

SL

61,000

-0-

10 yr

$

86,500

On June 27, 2020, $67,000 cash was paid for a new motor to replace the old one, which was scrapped. The new motor had an estimated useful life of 12 years and a residual value of $4,000. Early in 2020, it was determined that the useful life of the boat's fibreglass body should be adjusted to a total of 20 years with no change in the residual value.

Answer 1

Answer:

Component	Fibreglass	Old Motor	New Motor
Purchase date	09-Apr-09	09-04-2009	27-Jun-17
Cost	18000	56000	55000
Estimated Residual	3000		7000
Estimated life	15	10	12

Depreciation=(Cost - Salvage value) / Estimated life

Annual Depreciation

Fibre glass (18000 - 3000)/15	1000
Old motor (56000/10)	5600
New motor (55000 - 7000)/12	4000

Particulars	Fibre glass	Old motor	Period
20012	(1000) x 9/12 =750	(5600) x 9/12 = 4200	for 9 months from 9 April 20012
2013 - 2019	(1000 x 7) = 7000	(5600 x 7) = 39200	for 7 years
2020 till 27 june 2020		(5600) x 6/12 = 2800	for 6 months till 27 June 2020

Particulars	Fibre glass	Old motor
Accumulated Depreciation	(750+7000) = 7750	(4200+39200+2800) = 46200
Net Fixed Asset	(18000 - 7750) = 25750	(56000 - 46200) = 9800
Scrapped
Loss on scrapped motor		56000

Est. life - revised	20
Est. remaining life -Old	7.25	=15 years -7.75 Years
Est. remaining life - revised	12.25	=7.25 years -5 Years

Depreciation revised =(Net Fixed Asset - Salvage value) Est.revised life

(25750 - 7000)/12.25

=1530.61

Depreciation	Fibre glass	New motor
2020	1530.61	4000 x 6/12 = 2000
Accumulated depreciation	9280.61	2000

Journal entries:

Date	Account	Debit($)	Credit($)
27-Jun-20	Depreciation expense - Old Motor	3,000
	Accumulated Depreciation		3,000
	( To record depreciation in 2020 regarding motor being replaced)
27-Jun-20	New Motor	55,000
	Accumulated Depreciation	46200
	Loss on scrapped asset	9800
	Old Motor		56,000
	Cash		55,000
	( To record purchase of the replacement motor and old motor scrapped)
31-Dec-20	Depreciation expense - Boat body	1531
	Depreciation expense - New Motor	2,000
	Accumulated Depreciation		3,531
	( To record revised depreciation expense on fishing boat)
31-Dec-20	Depreciation expense - Boat body	1531
	Depreciation expense - New Motor	2,000
	Depreciation expense - Old Motor	3,000
	Accumulated Depreciation		6531
	(To record total depreciation on thefishing boat)