Exercise 12.1: Tran\'s Toy Store purchased a new computer system on 1 April 2005

Question

Exercise 12.1: Tran's Toy Store purchased a new computer system on 1 April 2005. The following information relates to this computer: Purchase price Maintenance contract Insurance Installation eqy me how the 30 $4 920 $120 per year $50 per year $80 osition on The owner estimates that she ill use the computer in the business for three years and then sell orEva's B about $1 100. aie115: Eva's driver to kee n he vehicle. T ine method c Using the straight line method of depreciation, calculate the depreciation expenses per ton a new a Calculate the total cost of the asset that should be considered for depreciation b In your answer to part a, did you exclude any items from the list of payments stated above? If so, explain how you would treat these items in the accounting reports of the business. annum. d Express the depreciation per annum as a percentage of the cost of the asset. e Prepare the adjusting entry for depreciation in the general journal on 31 March 2006 and

Explanation / Answer

a) Total cost = Purchase price + installation

= 4920 + 80

= 5000

b) The payments that is not included in the above list of payments includes maintenance contract and insurance. These are recurring expenses and are not included in the cost of the computer.

c) Depreciation expense = (Cost - salvage value) / Life

= (5000-1100)/3

= 1300

d) Depreciation as percentage = Depreciation expense / Cost

= 1300/5000

= 26%

e) Adjusting entry

Depreciation expense (debit) 1300

accumulated depreciation (Credit) 1300

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