Question

Question 2 (10 marks, 14 minutes) Total Graphics Ltd. ("TGL") purchased a new printing press on October 1, 2009, at a cost of $400,000. At the date of purchase, management estimated that the press would have a residual value of $80,000, an eight-year useful life, and could be expected to be operated for a total of 20,000 working hours. Actual machine usage was 2,000 hours in 2009, 6,000 hours in 2010, 5,200 hours in 2011 and 8,000 hours in 2012. TGL has a December 31 year end. Required: Prepare the journal entry to record the depreciation expense for fiscal year ended December 31, 2009 under the straight line method. (2 marks) a. b. Prepare the journal entry to record the depreciation expense for fiscal year ended December 31, 2009 under the double diminishing-balance method (3 marks) C. Calculate the amount of depreciation expense to be recorded at December 31, 2012, under the units of production method. (2 marks) d. TGL sold the printing press on January 1, 2012 for $295,000 cash. Prepare the journal entry to record the sale assuming that TGL uses the straight line method of depreciation. (3 marks)

Answer 1

Using SLM Original cost of new printing press Residual value Useful life (in years) Annual depreciation under Straight Line Method [Original cost - Residual value]/Useful life 4,00,000 80,000 40,000 Using Units of production method Year Actual machine usage Depreciation (in hours) 2009 2,000 30,189 2010 6,000 90,566 2011 5,200 78,491 2012 8,000 1,20,755 21,200 10,000 JOURNAL ENTRY Depreciation expense (40,000*3/12) Accumulated depreciation (Recording of depreciation expense for the year ended 31/12/2009 using SLM) 10,000 Amount of depreciation expense to be recorded at 31/12/2012 under units of production method is $ 1,20,755. Using Double diminishing balance method Applicable depreciation rate = 1/Useful life * 2 25.00% JOURNAL ENTRY Depreciation expense (4,00,000*25%*3/12) Accumulated depreciation (Recording of depreciation expense for the year ended 31/12/2009 using double diminishing balance method)