The equipment has been depreciated using the sum-of-the-years\'-digits method fo
ID: 2423313 • Letter: T
Question
The equipment has been depreciated using the sum-of-the-years'-digits method for the first 3 years for financial reporting purposes. In 2015, the company decided to change the method of computing depreciation to the straight-line method for the equipment, but no change was made in the estimated service life or salvage value. It was also decided to change the total estimated service life of the building from 30 years to 40 years, with no change in the estimated salvage value. The building is depreciated on the straight-line method. Prepare the general journal entry to record depreciation expense for the equipment in 2015. Prepare the journal entry to record depreciation expense for the building in 2015. (Round answers to 0 decimal places, e.g. 125. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required select "No Entry" for the account titles and enter O for the amounts.)Explanation / Answer
Answer (a)
Journal Entries to record depreciation expense for the equipment in 2015
Depreciation of equipment as per Sum of year Digit method
Figures in $
Particulars
Amount
Equipment cost
a
477350
Salvage value
b
16100
Depreciable value (a-b)
461250
Sum of the Years' Digits
15
(1+2+3+4+5)
Depreciation of equipment as per Sum of year Digit method
Figures in $
Year
Depreciable value
Depreciation factor
Depreciation
Accumulated Depreciation
a
b
a*b
2012
461250
5/15
153750
153750
2013
461250
4/15
123000
276750
2014
461250
3/15
92250
369000
Depreciation of Equipment as per straight line method
Figures in $
Particulars
Amount
Equipment cost
a
477350
Salvage value
b
16100
Depreciable value (a-b)
c
461250
No of years
d
5
Straight line method of yearly depreciation (c/d)
92250
Accumulated Straight line method of depreciation
276750
(From 2012 to 2014- 3 years)
(92250*3)
Total net depreciation tobe charged for equipment in the year 2015
Figures in $
Particulars
Amount
Written down value of equipment (straight line method)
a
200600
(477350-276750)
Written down value of equipment (sum of years digit method)
b
108350
(477350-369000)
Excess depreciation already provided for last 3 years to be reversed(b-a)
c
-92250
Straight line method of depreciation for the year 2015
d
92250
Total net depreciation to be charged in the year 2015 (c+d)
0
Journal Entries
(1) Excess Depreciation reversed
Accumulated Depreciation A/c Dr. 92250
To Profit & loss A/c Cr. 92250
(2) Depreciation of Equipment for 2015
Depreciation A/c dr. 92250
To Accumulated depreciation A/c Cr. 92250
Profit & loss A/c dr. 92250
To depreciation A/c Cr. 92250
Answer (b)
Journal Entry to record depreciation expense for the building in 2015
Depreciation calculation of building
Figures in $
Particulars
Amount
Building cost
a
875700
Salvage value
b
0
Depreciable value (a-b)
c
875700
Estimated service Life
d
30
Straight line method yearly depreciation (c/d)
29190
Accumulated depreciation form 2012 to 2014
e
87570
(29190*3)
Written down value as on December 31, 2014 (c-e)
f
788130
Total remaining revised service life
g
37
Change in total estimated Service life from 30 years to 40 years
(40 years - 3 years)
Revised depreciation for year 2015 (f/g)
21300.81
Journal Entry
(1) Depreciation of building for 2015
Depreciation A/c dr. 21300.81
To Accumulated depreciation A/c Cr. 21300.81
Profit & loss A/c dr. 21300.81
To depreciation A/c Cr. 21300.81
Depreciation of equipment as per Sum of year Digit method
Figures in $
Particulars
Amount
Equipment cost
a
477350
Salvage value
b
16100
Depreciable value (a-b)
461250
Sum of the Years' Digits
15
(1+2+3+4+5)
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