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

	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