Question

QS 10-12 Intangible assets and amortization LO P4 On January 4 of this year, Diaz Boutique incurs a $120,000 cost to modernize its store. Improvements include new floors, ceilings, wiring, and wall coverings. These improvements are estimated to yield benefits for 8 years. Diaz leases its store and has 5 years remaining on the lease. 1. & 2. Prepare the journal entry to record the cost of modernization and amortization at the end of this current year. View transaction list Journal entry worksheet Record the cost of modernization of the store for $120,000 cash. Note: Enter debits before credits. Date General Journal Debit Credit Jan 04 Record entry Clear entry View general journal

Answer 1

On January 4, Organisation has incurred $120,000 on improvements

So, We should capitalize it as Lease hold improvements

1.Recording cost of expenditure

January,4    Leasehold Improvements A/c Dr $120,000

                                 To Cash/bank A/C               $120,000

(Being Expenditure incurred on Lease hold improvements)

2.Recording Year end Amortisation Expense:

Assumptions: 1.The Lease hold improvements are subject to Straight line method of depreciation

                     2.The lease is an operating lease

Amortisation Expense=Cost(-) Salvage value/Estimated life of asset

                                  =120,000(-)0/8

                                  =15,000

Total no.of days the asset is in use for current year = 362

Amortisation expense for the year ended 31st december =15,000*362/365

                                                                                  =14,877(Approx)

December 31 Amortisation Expense A/c Dr 14,877

                                  To Accumulated Amortisation (Provision for Amortisation) A/c 14,877

      (Being Amortisation expense recognised for the year)