Question

1. An asset was purchased for $65,000 and originally estimated to have a useful life of 10 years with a residual value of $3,600. After two years of straight-line depreciation, it was determined that the remaining useful life of the asset was only 2 years with a residual value of $1,440.

a) Determine the amount of the annual depreciation for the first two years.
$

b) Determine the book value at the end of Year 2.
$

c) Determine the depreciation expense for each of the remaining years after revision.
$

2. Financial statement data for the years ended December 31 for Parker Corporation are as follows:

		Current Year	Prior Year
Net Sales		$2,595,600	$2,409,498
	Fixed assets (net):
	Beginning of the year	$901,070	$820,000
	End of the year	829,330	901,070

a. Determine the fixed asset turnover for the current and prior years. Round your answers to one decimal place.

Current Year:
Prior Year:

b. Does the change in fixed asset turnover from the prior year to the current year indicate a favorable or unfavorable trend?

3.

Answer 1

1
a)	Annual Depreciation as per Straight Line Method	=	(Purchase price - Residual value)/5
		=	($ 65,000 - $ 3,600) / 10
		=	$                                                           6,140.00
b)
Date	Particulars	Amount
0	Purchase Cost	$ 65,000.00
1	Depreciation 2016 (Refer WN 1 )	$    6,140.00
1	Book Value	$ 58,860.00
2	Depreciation 2017 (Refer WN 1 )	$    6,140.00
2	Book Value	$ 52,720.00
	So Book Value at the end of year 2 is $ 52,720.00
c)	Revised Annual Depreciation as per Straight Line Method	=	(Book Value at end of year 2 - Revised Residual value)/remaning year
		=	($ 52,720 - $ 1,440) / 2 years
		=	$ 51,280 / 2
		=	$                                                        25,640.00
2
a)	Fixed Assets Turnover Ratio	=	Net Sales / Average Fixed Assets
	Current Year	=	$ 25,95,600 / ($ 9,01,070 + $ 8,29,330)/2
		=	$ 25,95,600 / $ 8,65,200
		=	3	Times
	Prior Year	=	$ 24,09,498 / ($ 8,20,000 + $ 9,01,070)/2
		=	$ 24,09,498 / $ 8,60,535	860535
		=	2.8	Times
b)	Change in Fixed Assets turnover from the prior year to current year indicate a favourable trend since our ratio got improved.