Tipperary purchased a Machine on January 1 2009. The Machine was purchased on cr
ID: 2492352 • Letter: T
Question
Tipperary purchased a Machine on January 1 2009. The Machine was purchased on credit from Liam for $300, 000 + $30, 000 GST. The Machine has an expected life of 4 years and an expected residual of $60, 000 + GST $6,000. Calculate depreciation for the life of the Machine if the business used the straight line method of depreciation. Assuming the business used the straight line method to depreciate the Machine, complete the following accounts for the years ended 30 June, 2009 and 2010 Machine Account. Accumulated Depreciation - Machine. Depreciation Expense. If the Machine was sold for cash on July 1, 2010 for $127,600 including GST of $11,600, show all necessary entries, in general journal format, to record the sale and any gain or loss on sale.Explanation / Answer
(a)
Cost of machine = $(300,000 + 30,000) = $330,000
Residual value = $(60,000 + 6,000) = $66,000
Annual depreciation ($) = (Cost - Residual value) / Life = (330,000 - 66,000) / 4 = 264,000 / 4 = 66,000
In year-end 2009 and year-end 2013, Depreciation for the year = $66,000 / 2 = $33,000
Depreciation schedule:
(b)
(i) 30 June, 2009
Machine account = $297,000
Accummulated depreciation = $33,000
Depreciation expense = $33,000
(ii) 30 June, 2010
Machine account = $231,000
Accummulated depreciation = $(33,000 + 66,000) = $99,000
Depreciation expense = $66,000
(c)
Sale price excluding GST = $(127,600 - 11,600) = $116,000
Book value as at 1 July 2010 = $297,000
Loss on sale = Book value - Sale price = $(297,000 - 116,000) = $181,000
Journal entry:
DR Cash $127,600
DR Loss on sale $181,000
Machine $297,000
GST Payable $11,600
(To record sale of machine inclusive of GST and loss on such sale)
Year Ended Beginning book value ($) Annual depreciation ($) Ending book value ($) (A) (B) (A) - (B) Jun 30,2009 3,30,000 33,000 2,97,000 Jun 30,2010 2,97,000 66,000 2,31,000 Jun 30,2011 2,31,000 66,000 1,65,000 Jun 30,2012 1,65,000 66,000 99,000 Jun 30, 2013 99,000 33,000 66,000 TOTAL DEPRECIATION ($) = 2,64,000Related Questions
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