Question

Week 10 Nevertire Ltd purchased a delivery van costing $52,000. It is expected to have a residual value of $12,000 at the end of its useful life of 4 years or 200,000 kilometres. Ignore GST. Required: a) Assume the van was purchased on 1 July 2019 and that the accounting period ends on 30 June Calculate the depreciation expense for the year 2019-20 using each of the following depreciation methods (6 marks) straight-line • diminishing balance (depreciation rate has been calculated as 31%) units of production (assume the van was driven 78,000 kilometres during the financial year) b) Record the adjusting entries for the depreciation at 30 June 2021 using diminishing balance method. (2 marks) c) Show how the van would appear in the balance sheet prepared at the end of year 2 using Straight- line method. (2 marks) . .

Answer 1

a) Straight-line method Diminishing balance method Units-of-production method $10,000 $16,120 $15,600 Working notes: Straight Line Depreciation Schedule Asset Depreciable Date Cost cost At acquisition $52,000 2019-20 $40,000/ Useful life (years) Depreciation Accumulated Net Book Expense Depreciation value $52,000 $10,000 $10,000 $42,000 4 Depreciable cost = Asset purchase cost-salvage value Diminishing Balance method Depreciation Schedule Asset Beginning Depreciation Depreciation Accumulated Net Book Date Cost book value rate Expense Depreciation value At acquisition $52,000 $52,000 2019-20 52,000 XI 31% $16,120 $16,120 $35,880 Units -of -production method Depreciation schedule Asset Date kms Cost At acquisition $52,000 2019-20 78,000 Depreciation Depreciation Accumulated Net Book XI rate per unit Expense Depreciation value $52,000 X $0.20 $15,600 $15,600 $36,400 per km Depreciation per km Total Depreciable cost Total kms $40,000 200,000 $0.20 Credit b) Adjusting entry Date General Journal Jun-30 Depreciation 2020 Accumulated depreciation (To record depreciation on fixed asset) Debit $11,123 $11,123 Working notes: Diminishing Balance method Depreciation Schedule Asset Beginning Depreciation Depreciation Accumulated Net Book Date Cost book value rate Expense Depreciation value At acquisition $52,000 $52,000 2019-20 52,000 X 31% $16,120 $16,120 $35,880 2020-21 35,880 x 31% $11,123 $27,243 $24,7571 c) Balance sheet at end of year 2 Property, plant and equipment: Delivery van $52,000 Less: Accumulated depreciation $20,000 $32,000 Accumulated depreciation is $10,000 for 2 years = $20,000