Question

In: Accounting

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

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?

Solutions

Expert Solution

a) STRAIGHT LINE METHOD:
Annual Depreciation=(Cost of asset-Salvage Value)/Useful life in years
Cost of asset $243,000
Residual   Salvage Value $28,800
Useful Life in years 10
Annual Depreciation=(243000-28800)/10 $21,420
Year Depreciation Amount
2019 $7,140 (2140*(4/12)
2020 $21,420
b) 25% DIMINISHING BALANCE METHOD
Amount of Depreciation=Beginning Book value*Rate
Rate of Depreciation =25%
Year 2019
Depreciation for 4 months =243000*25%*(4/12)= $20,250
Book Value at beginning of 2020=243000-20250= $222,750
Depreciation for the year 2020=222750*25%= $55,688
C) UNIT OF PRODUCTION METHOD
Amount of depreciation in 10 years =243000-28800 $214,200
Expected working hours 42000
Depreciation rate per unit=214200/42000= $5.10
Depreciation in 2019 =1820*$5.10 $9,282
d) Purchase Price of Truck $23,650
Purchase Price of Truck excluding GST =23650/1.1 $21,500
Residual Value excluding GST $2,150
Useful Life in years 6
Annual Depreciation =(21500-2150)/6 $3,225
Accumulated Depreciation in 5 years=3225*5 $16,125
Book Value at end of 2020=21500-16125 $5,375
Loss on Scrapping the Truck $5,375

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