Question

given equipment cost $100,000

life 4years

method of depreciation double declining balance

record the entry when purchased if the equipment was purchased for cash

cash I

the equipment is used for 6years and the disposed

record the entry for this transaction

cashII

the equipment is sold at the end of 3years for $15,000

record the entry for this transaction

cashII

the equipment is solf at the end of 3years for $15,000

record the entry for this transaction

Answer 1

Entry 1: Entry to be recorded when the equipment is purchased.

As the euipment is giving economic benefits to the entity for a period exceeding 1 year... The cost of asset should be capitalised. The entry for the same will be as below:

Equipment a/c Dr . $ 100000

To cash. A/c. $ 100000

(Being equipment purchased for cash)

As the useful life of the asset is assessed as 4 years only at the time of capitalisation of the asset, the asset would have been completely depreciated by the 6th year at the time of sale. So, the entry for the sale will be as below.

Bank/ cash a/c . Dr. $ 15000

To Equipment a/c. $ 15000

( Being equipment sold)

As the life of the equipment is given as 4 years, yearly depreciation percentage under straight line method comea to 25% and hence as it is double declining method it comes to 200% of SLM method. So, the depreciation percentage under double declining method will be 50%.

The value of the equipment at the end of year 3 will be 12500 ($100000-50000-25000-12500). Since, the asset was sold at $15000, there is a capital gain of $2500. The entry for the sale of equipment will be as below

Bank/ cash. A/c. Dr. $15000

To Machinery a/c . $12500

To gain on sale of asset a/c. $2500

( Being equipment sold for a capital gain of $2500)