Question

Stacey Ltd purchased a new machine on 1 September 2019 at a cost of $206,100 (excluding GST). The entity estimated that the machine has a residual value of $29,700 (excluding GST). The machine is expected to be used for 36,000 working hours during its 8 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 $24,200 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 $2200 (excluding GST). What was the profit or loss on the scrapping of the truck?

Answer 1

	A		Straight Line Method
		A	Cost of New Machine-01/09/2019	206,100
		B	Salvage Value	29,700
		C	Useful life	8	Years
		D=(A-B)/C	Depreciaton P a	22,050
		E=D/12	Depreciation P.M	1,838
		F=E X4	Depreciation for 2019-4 months	7,350
			Depreciation for 2020	22,050
	B		Diminishing Balance Method
			Depreciation for 2019	17,175	(206100 X 25% X 4/12)
			(4 months)
			Depreciation for 2020	47,231	(206100-17175) X25%
	C		Units of Production Method
			Cost of New Machine	206,100
			Annual Depreciation=	Depreciable Value X(Actual usage during the year/Estimated Hours)
			Depreciable Value = Original cost – Scrap value
			Depreciable Value = 206100-29700=176400
			Annual Depreciation=176400 X( 1820/36000)	8918
	D	A	Cost of Truck(Excluding GST)	22,000	(24200/1.1)
		B	Salvage Value	2,200
		C	Useful life	6	Years
		D=(A-B)/C	Depreciaton P a	3,300
		E=D X 5	Depreciation for 5year	16,500
		F=A-E	Written Down Value	5,500
			Loss on Scrapping of truck	5,500