question archive A manufacturer purchased a machine for €74,000 on 1 January 2016 It had an estimated useful life of 4 years and an estimated residual value of €10,000
A manufacturer purchased a machine for €74,000 on 1 January 2016 It had an estimated useful life of 4 years and an estimated residual value of €10,000
Subject:AccountingPrice:2.84 Bought3
A manufacturer purchased a machine for €74,000 on 1 January 2016 It had an estimated useful life of 4 years and an estimated residual value of €10,000. a) Calculate the depreciation charge for each year using the (1) "straight line" method and (ii) the reducing balance" method. A depreciation rate of 39% is to be used for the "reducing balance" method and calculations should be rounded to the nearest euro. b) Show the depreciation expense account and the accumulated depreciation account for each year from 2016 to 2019 inclusive for the straight line" method Show the (i) machinery, (ii) accumulated depreciation and (iii) disposal - machinery accounts for 2020 if the firm sold the machine on 1 January 2020, for € 10,750, having applied the "straight line" method. (You may assume that the manufacturer had no other machinery and therefore no depreciation needed be charged in 2020.) Show the (i) machinery, (ii) accumulated depreciation and (iii) disposal - machinery accounts for 2020 if the firm sold the machine on 1 January 2020, for €9,100, having applied the "straight line" method. (You may assume that the manufacturer had no other machinery and therefore no depreciation needed be charged in 2020) c) d)
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ANSWER:
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A. DEPRECIATION FOR EACH YEAR |
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(i) Straight line method |
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Formula = (Cost - Scrap) / Life |
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= (74,000 - 10,000) / 4 years |
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= € 16,000 p.a. |
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For each year, depreciation will be € 16,000 |
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(ii) Reducing Balance method @ 39% |
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Purchase cost 1st January 2016 |
74,000 |
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Depreciation @ 39% for 2016 |
28,860 |
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Written down value on 31st December 2016 |
45,140 |
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Depreciation @ 39% for 2017 |
17,605 |
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Written down value on 31st December 2017 |
27,535 |
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Depreciation @ 39% for 2018 |
10,739 |
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Written down value on 31st December 2018 |
16,797 |
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Depreciation @ 39% for 2019 |
6,551 |
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Written down value on 31st December 2019 |
10,246 |
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B. DEPRECIATION ACCOUNTS for straight line method |
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DEPRECIATION EXPENSE ACCOUNT |
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DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
31.12.2016 |
TO ACCUMULATED DEPRECIATION A/C |
16,000 |
31.12.2016 |
BY PROFIT & LOSS A/C |
16,000 |
|
16,000 |
16,000 |
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31.12.2017 |
TO ACCUMULATED DEPRECIATION A/C |
16,000 |
31.12.2017 |
BY PROFIT & LOSS A/C |
16,000 |
|
16,000 |
16,000 |
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|
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31.12.2018 |
TO ACCUMULATED DEPRECIATION A/C |
16,000 |
31.12.2018 |
BY PROFIT & LOSS A/C |
16,000 |
|
16,000 |
16,000 |
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31.12.2019 |
TO ACCUMULATED DEPRECIATION A/C |
16,000 |
31.12.2019 |
BY PROFIT & LOSS A/C |
16,000 |
|
16,000 |
16,000 |
ACCUMULATED DEPRECIATION ACCOUNT
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
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31.12.2016 |
TO BALANCE c/d |
16,000 |
31.12.2016 |
BY DEPRECIATION EXPENSE A/C |
16,000 |
|
16,000 |
16,000 |
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01.01.2017 |
BY BALANCE b/d |
16,000 |
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31.12.2017 |
TO BALANCE c/d |
32,000 |
31.12.2017 |
BY DEPRECIATION EXPENSE A/C |
16,000 |
|
32,000 |
32,000 |
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01.01.2018 |
BY BALANCE b/d |
32,000 |
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31.12.2018 |
TO BALANCE c/d |
48,000 |
31.12.2018 |
BY DEPRECIATION EXPENSE A/C |
16,000 |
|
48,000 |
48,000 |
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01.01.2019 |
BY BALANCE b/d |
48,000 |
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31.12.2019 |
TO BALANCE c/d |
64,000 |
31.12.2019 |
BY DEPRECIATION EXPENSE A/C |
16,000 |
|
64,000 |
64,000 |
C. ACCOUNTS FOR 2020, SOLD FOR € 10,750
MACHINERY A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
01.01.2020 |
TO BALANCE b/d |
74,000 |
01.01.2020 |
BY DISPOSAL A/C |
74,000 |
|
74,000 |
74,000 |
ACCUMULATED DEPRECIATION A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
01.01.2020 |
TO DISPOSAL A/C |
64,000 |
01.01.2020 |
BY BALANCE b/d |
64,000 |
|
64,000 |
64,000 |
MACHINE DISPOSAL A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
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01.01.2020 |
TO MACHINERY A/C |
74,000 |
01.01.2020 |
BY ACCUMULATED DEPRECIATION A/C |
64,000 |
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01.01.2020 |
BY BANK A/C |
10,750 |
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01.01.2020 |
TO PROFIT ON SALE OF MACHINE (balance) |
750 |
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74,750 |
74,750 |
D. ACCOUNTS FOR 2020, SOLD FOR € 9,100
MACHINERY A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
01.01.2020 |
TO BALANCE b/d |
74,000 |
01.01.2020 |
BY DISPOSAL A/C |
74,000 |
|
74,000 |
74,000 |
ACCUMULATED DEPRECIATION A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
01.01.2020 |
TO DISPOSAL A/C |
64,000 |
01.01.2020 |
BY BALANCE b/d |
64,000 |
|
64,000 |
64,000 |
MACHINE DISPOSAL A/C
|
DATE |
PARTICULARS |
AMOUNT |
DATE |
PARTICULARS |
AMOUNT |
|
01.01.2020 |
TO MACHINERY A/C |
74,000 |
01.01.2020 |
BY ACCUMULATED DEPRECIATION A/C |
64,000 |
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01.01.2020 |
BY BANK A/C |
9,100 |
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01.01.2020 |
BY LOSS ON SALE OF MACHINE ( balance) |
900 |
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|
74,000 |
74,000 |
