Question

Stacey Ltd purchased a new machine on 1 September 2019 at a cost of $243,000 (excluding GST).

The entity estimated that the machine has a residual value of $28,800 (excluding GST).

The machine is expected to be used for 42,000 working hours during its 10 year life

Assume a 31 December year-end.

Required                                                                                           

(a) Calculate the depreciation expense using the straight-line method for 2019 and 2020.
(b) Calculate the depreciation expense using the diminishing-balance method and a depreciation rate of 25% for 2019 and 2020.
(c) Calculate the depreciation expense using the units-of-production method for 2019, assuming the machine usage was 1.820 hours.
(d) On 31 December 2020 the company discarded a delivery truck that was purchased on 1 January 2016 for $23,650 cash including
GST of 10% and was depreciated on a straight line basis with a useful life of 6 years and a residual value of $2150 (excluding GST).
What was the profit or loss on the scrapping of the truck?

Answer 1

Part(a)
Calculation of Annual Depreciation using SLM
Cost of assest-Residual Value/Useful life of assest
(243000-28800)/10)
Annual Depreciation	21,420
Depreciation For 2019(4 months)(21420*4/12)	7,140
Depreciation For 2020(12 months)	21,420

Part(b)
Calculation of Annual Depreciation using Dminishing
book value at beginning*dep rate
Depreciation For 2019(4 months)	20,250
(243000*25%*4/12)
Depreciation For 2020(12 months)	55,688
(243000-20250)*25%

part ('c)
Depreciation as per Units production method
((Cost-Salvage Value)/total capacity)*Capacity used during year
Year 2019 Depreciation	9,282
((243000-28800)/42000)*1820

Part(d)
Calculation of book value of truck at the time of sale
Cost on 1 Jan 2016	21,500
(23650/110%)= 21500
Depreciation for 5 Yrs	16,125
((21500-2150)/6)*5
Book Value at 31 Dec,2020	5,375
Residual Value	2,150
Loss on Scrapping	3,225