Question

At December 31, 2017, Cord Company's plant asset and accumulated depreciation and amortization accounts had balances as follows:

Category	Plant Asset				Accumulated Depreciation and Amortization
Land	$	175,000			$	—
Buildings		1,500,000				328,900
Machinery and equipment		1,125,000				317,500
Automobiles and trucks		172,000				100,325
Leasehold improvements		216,000				108,000
Land improvements		—				—

Depreciation methods and useful lives:
Buildings—150% declining balance; 25 years.
Machinery and equipment—Straight line; 10 years.
Automobiles and trucks—150% declining balance; 5 years, all acquired after 2014.
Leasehold improvements—Straight line.
Land improvements—Straight line.

Depreciation is computed to the nearest month and residual values are immaterial. Transactions during 2018 and other information:

On January 6, 2018, a plant facility consisting of land and building was acquired from King Corp. in exchange for 25,000 shares of Cord's common stock. On this date, Cord’s stock had a fair value of $50 a share. Current assessed values of land and building for property tax purposes are $187,500 and $562,500, respectively.

On March 25, 2018, new parking lots, streets, and sidewalks at the acquired plant facility were completed at a total cost of $192,000. These expenditures had an estimated useful life of 12 years.

The leasehold improvements were completed on December 31, 2014, and had an estimated useful life of eight years. The related lease, which would terminate on December 31, 2020, was renewable for an additional four-year term. On April 30, 2018, Cord exercised the renewal option.

On July 1, 2018, machinery and equipment were purchased at a total invoice cost of $325,000. Additional costs of $10,000 for delivery and $50,000 for installation were incurred.

On August 30, 2018, Cord purchased a new automobile for $12,500.

On September 30, 2018, a truck with a cost of $24,000 and a book value of $9,100 on date of sale was sold for $11,500. Depreciation for the nine months ended September 30, 2018, was $2,650.

On December 20, 2018, a machine with a cost of $17,000 and a book value of $2,975 at date of disposition was scrapped without cash recovery.

Required:

1. Prepare a schedule analyzing the changes in each of the plant asset accounts during 2018. Do not analyze changes in accumulated depreciation and amortization.
2. For each asset category, prepare a schedule showing depreciation or amortization expense for the year ended December 31, 2018.

Answer 1

(1) Cord Company

Analysis of changes in plant assets account during 2018

Plant assets	Opening balance as on 31/12/2017($) [A]	Increase($) [B]	Decrease($) [C]	Closing balance as on 31/12 2018($) [A] + [B] + [C]
Land	175000	312500 (WN i)	-	487500
Buildings	1500000	937500 (WN i)	-	2437500
Machinery and Equipment	1125000	385000 (WN ii)	17000	1493000
Automobiles and trucks	172000	12500	24000	160500
Leasehold improvements	216000	-	-	216000
Land improvements	-	192000	-	192000

Working Notes:

(i) Land and building acquired from King Corp on Jan 6,2018 in exchange of 25000 shares of Cord company common stock

Fair value of stock = 25000 x 50 = $ 1,250,000

This fair value will be allocated between land and building in the ratio of thier current assesed value which is computed as follows:

	Amount ($)	% of total
Land	187500	25
Building	562500	75
	750000	100

Therefore the allocated values

Land = 1250000 x 25% = $ 312,500

Building= 1250000 x 75% = $ 937,500

(ii) Computation of acquisition cost of machinery and equipment

Particulars	Amount($)
Purchase cost	325000
Delivery cost	10000
Installation cost	50000
Total	385000

(2) Cord company

Depriciation and ammortisation expense for the year ended Dec 31 2018

Plant assets	Depriciation or ammortisation for 2018($)
Land	Nil
Buildings	126,516
Machinery and equipment	131,750
Automobiles and trucks	21,878
Leasehold improvements	21,600
Land improvements	12,000
Total	313,744

Detailed schedule for each plant asset category

Building:

Particulars	Working	Details	Depriciation Amount($)
Book value on 01/01/2018	[balance on 31/12/2017 - accumulated depriciation on 31/12/2017] = [1500000 - 328900]	$1,171,100
Add: Acquisition on 01/06/2018	(WN i)	$937,500
Total amount to be depriciated		$2,108,600
Multiply: Depriciation rate	150% declining balance rate = 1.5 x [1/useful life] = 1.5 x [1/25]	6%	126,516

Machinery and equipment:

Particulars	Working	Details	Depriciation Amount($)
Balance on 01/01/2018		$1,125,000
Multiply: straight line depriciation rate	(1/useful life) x100 =(1/10) x 100	10%	112,500
Purchase on 01/07/2018	(WN ii)	385000
Multiply: straight line depriciation rate for 6 months (01/07/2018 to 31/12/2018)	= 10% x 6/12	5%	19,250
Total depriciation			131,750

Note: In case of Machinery and equipment we dont take book value i.e we dont deduct accumulated depriciation from closing balance as we have to compute straight line depriciation which is computed on the original cost.

Automobiles and trucks:

Particulars	Working	Details	Depriciation Amount($)
Book value on 01/01/2018	[balance on 31/12/2017 - accumulated depriciation on 31/12/2017] = [172000 - 100325]	$71,675
Deduct: truck sold on 30/09/2018	[Book value on date of sale + depriciation for 9 months] = 9160 + 2650	$(11750)
Amount to be depriciated		$59,925
Multiply:150% declining balance rate	= 1.5 x 1/useful life = 1.5 x 1/5	30%	17,978
Automobile purchased 30/08/2018		$12,500
Multiply:150% declining balance rate for 4 months (30/08/2018 to 31/12/2018)	=30% x 4/12	10%	1,250
Depriciation on truck sold on 30/09/2018	given		2,650
Total depriciation			21,878

Leasehold improvement:

Particulars	Working	Details	Depriciation Amount($)
Book value on 01/01/2018	[balance on 31/12/2017 - accumulated ammortisation on 31/12/2017] = [216000 - 108000]	$108,000
Divide: ammortisation period	from 01/01/2018 to 31/12/2022 (lease renewed on april 30 2018 for additional four years. Therefore this year with additional 4 years becomes 5 years)	5 years	21,600

Land improvements:

Particulars	Working	Details	Depriciation Amount($)
Cost		$192,000
Multiply: straight line depriciation rate for 9 months ( 25/03/2018 to 31/12/2018)	(1/useful life) x100x period of use =(1/12) x 100 x 9/12	6.25%	12,000