Club York is located in the center of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 March 2019. • The sound system cost $35,000 to purchase and $4,500 to install. The lighting system cost $55,000. • The sound system has a useful life of 8 years and residual value $500. The lighting system has a useful life of 5 years and no residual value. Both are depreciated on a straight-line basis. Club York’s accounting period ends on 30 June each year. It has adopted straight-line method of depreciation. Required: a) What is the cost and the carrying value for the assets discussed above as at 30 June 2019? b) Would Club York’s profit be higher or lower for the year ending 30 June 2019 if it had adopted the diminishing value method of depreciation? Explain. c) On 1 September 2019, it was found that the lighting system was no longer flashing ultraviolet rays in time with the music (as it should). $900 was spent to have this fixed. On 1 October 2019, $6500 was spent to give the sound system a heavier bass beat. What is the appropriate accounting treatment for the events that occurred on 1 September 2019 and 1 October 2019? Explain. d) Outline the main factors to be considered in selecting an appropriate depreciation method.

Financial Accounting

14th Edition

ISBN:9781305088436

Author:Carl Warren, Jim Reeve, Jonathan Duchac

Publisher:Carl Warren, Jim Reeve, Jonathan Duchac

Chapter10: Fixed Assets And Intangible Assets

Section: Chapter Questions

Problem 3CP: Tuttle Construction Co. specializes in building replicas of historic houses. Tim Newman, president...

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Club York is located in the center of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 March 2019. • The sound system cost $35,000 to purchase and $4,500 to install. The lighting system cost $55,000. • The sound system has a useful life of 8 years and residual value $500. The lighting system has a useful life of 5 years and no residual value. Both are depreciated on a straight-line basis. Club York’s accounting period ends on 30 June each year. It has adopted straight-line method of depreciation. Required: a) What is the cost and the carrying value for the assets discussed above as at 30 June 2019? b) Would Club York’s profit be higher or lower for the year ending 30 June 2019 if it had adopted the diminishing value method of depreciation? Explain. c) On 1 September 2019, it was found that the lighting system was no longer flashing ultraviolet rays in time with the music (as it should). $900 was spent to have this fixed. On 1 October 2019, $6500 was spent to give the sound system a heavier bass beat. What is the appropriate accounting treatment for the events that occurred on 1 September 2019 and 1 October 2019? Explain. d) Outline the main factors to be considered in selecting an appropriate depreciation method.

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