Question

Leslie Co. purchases a specialty table saw for its metal fabrication business on January 1, 2021. The machine cost $350,000 and is expected to be used for five years. At the end of the five years it is expected that the machine can be sold for $15,000.

a) Compute the depreciation expense for the third year (2023) using, straight-line and double-declining-declining balance depreciation methods.

b) Compute the ending book value for the third year (2023) using the above two depreciation methods.

c) Under the straight-line method, if Leslie Co. decides to sell the machine for $145,000 in 2023, please write down the appropriate journal entries to reflect the gains (losses) of this sale.

Answer 1

a. Depreciation Exense for the year 2023:

Straight Line method = $67,000

Double Declining Method = $50,400

b.Book Values for the year 2023:

Straight Line Method = $149,000

Double Declining Method= $75,600

c). Book Value of Asset at the end of 2023 = $149,000

Company decided to sell the asset for $145,000

Loss on sale of asset=$149,000 - $145,000 = $4000

Journal Entry:

Date	Acounting Title & Explanation	Debit	Credit
2023	Cash	$145,000
	Loss on Sale of Asset	$4000
	Machine		$149,000

WORKINGS:

	Depreciation under Straight line method
		depreciation = (Cost of the asset - Salvage Value)/ Useful life of asset
		= ($350000 - $15000)/5
		=$335,000 / 5
		=$67000 per year
	Depreciation expense per year = $67000
	Year	Opening Carrying Amount	Depreciation Expense	Book value
	2021	3,50,000	67,000	2,83,000
	2022	2,83,000	67,000	2,16,000
	2023	2,16,000	67,000	1,49,000

Double Declining Balance method
Double declining Balance depreciation = 2 × Straight-line depreciation rate × Book value at the beginning of the year
Depreciation rate = 100% / Life of the Asset
= 100%/5
=20%
Depreciation rate under Double Declining Rate = 2 x 20% = 40%
Double Declining Balance method
Year	Net book value at the beginning of the year	Annual Depreciation @240%	Net book valueat the end of the year
2021	3,50,000	1,40,000	2,10,000
2022	2,10,000	84,000	1,26,000
2023	1,26,000	50,400	75,600