Question

Luther Company’s selected transactions during 2017, 2018, 2019 and 2020 are as follows:

Jan. 1, 2017	Purchased a packaging machine for 24.150 TL on account. The machine has a useful life of 5 years and salvage value of 2.450 TL. The machine requires installation cost of 12.560 TL and also company paid transportation cost of 2.000 TL. Machinery will be depreciated by using double declining balance method.
March 1, 2018	Paid 314.000 TL cash for a new delivery truck and custom duties and fees of 1.635 TL are paid in cash. The truck has estimated useful life of five-years and a 31.400 TL salvage value. The truck will be depreciated by using straight line method.
Jan. 1, 2019	The company paid 10.500 TL for engine overhaul that extend the life of the machine for a total of 6 years. The new salvage value is 5.000 TL.
Aug. 31, 2020	Traded the packaging machine for a new one, priced at 98.000 TL receiving a trade in allowance of 11.000 TL paying 87,000 in cash.
Nov. 30, 2020	Traded the truck for a new one priced at 510.000 TL receiving a trade in allowance of 100.000 TL paying the balance in cash.

Required: Record the transactions and adjusting entries in general journal form.

Answer 1

JAN .1.2017

INITIAL RECOGNITION;-

INITIALLY RECORDED AT THE COST OF THE ASSET PLUS ALL THE COST WHICH ARE NECESSARY TO GET THE ASSET READY FOR USE.

PURCHASE PRICE OF MACHINE 24.150

(+) INSTALLATION COST 12.560

(+) TRANSPORTATION COST 2.000

TOTAL COST OF THE MACHINE =38.710

JOURNAL ENTRY

JAN.1.2017 DR PACKAGING MACHINE 38.710

CR ACCOUNTS PAYABLE 38.710

CALCULATION OF DEPRECIATION (DOUBLE DECLINING BALANCE METHOD)

IN DDBM METHOD WE USE A RATE THAT IS TWO TIMES(TWICE) THE PERCENTAGE THAT WOULD BE RECOGNISED UNDER THE STRAIGHT LINE METHOD

  

AS PER STRAIGHT METHOD RATE IS:-

= (38.710-2.450) /5

=7.252

DEPRECIATION RATE =7.252 / 36.26(DB) *100

  SLM % =22.479%

DDBM % =22.479 * 2

=44.958%

YEAR 1 DEPRECIATION AMOUNT =38.710 *44.958%

= 17.403

YEAR 2 DEPRECIATION AMOUNT=(38.710 - 17.403) * 44.958%

=9.579

JE:-

JAN.1.2018 DR DEPRECIATION EXPENSE 17.403

CR ACCUMULATED DEPRECIATION 17.403

JAN.1.2019 DR DEPRECIATION EXPENSE 9.579

CR ACCUMULATED DEPRECIATION 9.579

DELIVERY TRUCK

TOTAL COST OF DELIVERY TRUCK

PURCHASE PRICE = 314.000

CUSTOM DUTIES AND FEES = 1.635

TOTAL COST =315.635

INITIAL JOURNAL ENTRY

DR DELIVERY TRUCK 315.635

CR CASH 315.635

DEPRECIATION CALCULATION OF DELIVERY TRUCK ( SLM METHOD )

DEPRECIATION = DEPRECIABLE BASE (DB ) /USE FULL LIFE OF THE ASSET

DEPRECIABLE BASE = COST OF THE ASSET - SALVAGE VALUE (315.635 - 31.400 = 284.235)

  

=284.235 / 5

= 56.847

JOURNAL ENTRY

MAR . 1, 2019 DR DEPRECIATION EXPENSE 56.847

CR ACCUMULATED DEPRECIATION 56.847

MAR 1 2020 DR DEPRECIATION EXP 56.847

CR ACCUMULATED DEPRECIATION 56.847

NOV. 30.2020 DR DEPRECIATION EXP 42.63 (56.847 *9 MONTH / 12 MONTH)

CR ACCUMULATED DEP 42.63

PACKAGING MACHINE MAINTANANCE ;-

JAN 1 .2019 DR ENGINE OVERHAUL EXPENSE 10.500

CR CASH 10.500

(MAINTANANCE EXPENSE )

AFTER THE MAINTANCE NEW DEPRECIATION WILL BE ;

TOTAL COST =38.71 -26.982 (YEAR 1 & 2 DEPRECIATION)

NOW THE CARRYING VALUE OF THE ASSET =11.728

(+) MAINTANCE EXP =10.500

TOTAL =22.228

JOURNAL ENTRY

AUG .31.2020 DR PACKAGING MACHINE 98.000

CR TRADE IN ALLOWANCE 11.000

CR CASH 87.000

(TRADED THE PACKAGING MACHINE FOR A NEW ONE PRICED AT 98.000 TL RECIEVING A TRADE IN ALLOWANCE OF 11.000 TL PAYING THE 87.000 IN CASH )

JOURNAL ENTRY

NOV.30.2020 DR TRUCK 510.000

CR TRADE IN ALLOWANCE 100.000

CR CASH 410.000

(TRADED TRUCK FOR A NEW ONE PRICED AT 510.000 TL RECIEVING A TRADE IN ALLOWANCE OF 100.000 TL PAYING THE BALANCE 410.000 IN CASH )

LOSS ON DISPOSAL OF TRUCK

NOV 30 2020 DR CASH 100.000

DR LOSS ON SALE OF ASSET   27.9111

CR TRUCK 127.9111

LOSS ON DISPOSAL OF PACKING MACHINE

AUG 31 2020 DR CASH 11.000

DR LOSS ON DISPOSAL 1.750

CR PACKING MACHINE 12.750