ABC Ltd acquired an item of machinery on 1 July 2021 for a cost of $120 000 When the asset was acquired it was considered that the asset would have a useful life to the entity of five years, after which time it would have no residual value It was considered that the pattern of economic benefits would best be reflected by applying the sum-of-digits method Contrary to expectations, on 1 July 2023 the asset was sold for $80 000 Required 1. What was the profit on disposal on 1 July 2023 and what are the journal entries to record the disposal? (Use sum of digit depreciation method) 2. Prepare Depreciation Schedule for the period.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
ABC Ltd acquired an item of machinery on 1 July 2021 for a cost of $120 000 When the asset was acquired it was considered that the asset would have a useful life to the entity of five years, after which time it would have no residual value It was considered that the pattern of economic benefits would best be reflected by applying the sum-of-digits method Contrary to expectations, on 1 July 2023 the asset was sold for $80 000 Required 1. What was the profit on disposal on 1 July 2023 and what are the
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