Hamed Al Balushi SAOC is an organization specialized in the manufacturing of machine components, which are sold across many retailers in Oman. The organization manufactures the machine components using a specialized machinery. The machinery was purchased for OMR 100,000 on 1st January 2015.The equipment has a salvage value OMR 20,000. The equipment was estimated to have a useful life of five years and is depreciated using the straight-line method. However, the asset was disposed on the 31st of October 2019 for OMR 45,000. Below are some of the transactions that took place from the time of purchase to Disposal. Date Particulars Dec 31st,2015 Recorded Depreciation expense for 2015 Jan 1st ,2016 The organization installed a component which improved the quality of equipment. The cost of the new component installed cost OMR 4000. However, the estimated useful life did not increase due to this change. Dec 31st, 2016 Recorded depreciation expense. The organization further undertook routine maintenance which costed OMR 600. Jun 15th 2017 The organization incurred a routine repair costing OMR 250 and incurred a cost of OMR 150 for cleaning the equipment. Recorded depreciation. Jan 1st 2018 Incurred a cost of OMR 7000 to increase the durability of the equipment by replacing the existing motor of the equipment. It is estimated that this new motor will extend the total life to 9 years Dec 31st ,2018 Recorded the depreciation expense for 2018 Feb 3rd 2019 Incurred a routine maintenance cost of OMR 180 Oct 31st , 2019 The organization planned disposed the asset for a sales value of OMR 45,000 Based on the above information given you are required to calculate the following. A). Calculate the values of Depreciation in the year 2016 and 2018. B). Calculate the gain or loss on the equipment. C). Prepare the journal entries accounting for the disposal. D). Explain why the expenditures incurred on 1st of January 2016 is Capitalized to the machinery.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Hamed Al Balushi SAOC is an organization specialized in the manufacturing of machine components, which are sold across many retailers in Oman. The organization manufactures the machine components using a specialized machinery. The machinery was purchased for OMR 100,000 on 1st January 2015.The equipment has a salvage value OMR 20,000. The equipment was estimated to have a useful life of five years and is depreciated using the straight-line method. However, the asset was disposed on the 31st of October 2019 for OMR 45,000. Below are some of the transactions that took place from the time of purchase to Disposal.

Date	Particulars
Dec 31st,2015	Recorded Depreciation expense for 2015
Jan 1st ,2016	The organization installed a component which improved the quality of equipment. The cost of the new component installed cost OMR 4000. However, the estimated useful life did not increase due to this change.
Dec 31st, 2016	Recorded depreciation expense. The organization further undertook routine maintenance which costed OMR 600.
Jun 15th 2017	The organization incurred a routine repair costing OMR 250 and incurred a cost of OMR 150 for cleaning the equipment. Recorded depreciation.
Jan 1st 2018	Incurred a cost of OMR 7000 to increase the durability of the equipment by replacing the existing motor of the equipment. It is estimated that this new motor will extend the total life to 9 years
Dec 31st ,2018	Recorded the depreciation expense for 2018
Feb 3rd 2019	Incurred a routine maintenance cost of OMR 180
Oct 31st , 2019	The organization planned disposed the asset for a sales value of OMR 45,000

Based on the above information given you are required to calculate the following.
A). Calculate the values of Depreciation in the year 2016 and 2018.
B). Calculate the gain or loss on the equipment.
C). Prepare the journal entries accounting for the disposal.
D). Explain why the expenditures incurred on 1st of January 2016 is Capitalized to the machinery.

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