On 1 July 2019, Briarly Pty Ltd purchased a new printing machine for $152,000. The company expected the machine to be used for ten (10) years or 20,000 machine hours, with an estimated residual value of $2,000 at the end of its useful life. Actual usage of the machine for the first three (3) years was noted as follows: Year 1: 400 hours Year 2: 1200 hours Year 3: 2000 hours Required: Calculate the depreciation expense for the second year using each of the methods below: Straight-line Units of production Reducing balance method at the rate of 20% each year 2. If the straight – line method was used and the machine was sold at the end of year 2 for $110,000, calculate the carrying amount of the machine at the end of year 2. 3. Prepare the journal entry to record the sale of the machine.
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.
On 1 July 2019, Briarly Pty Ltd purchased a new printing machine for $152,000. The company expected the machine to be used for ten (10) years or 20,000 machine hours, with an estimated residual value of $2,000 at the end of its useful life. Actual usage of the machine for the first three (3) years was noted as follows:
- Year 1: 400 hours
- Year 2: 1200 hours
- Year 3: 2000 hours
Required:
- Calculate the
depreciation expense for the second year using each of the methods below:
- Straight-line
- Units of production
Reducing balance method at the rate of 20% each year
2. If the straight – line method was used and the machine was sold at the end of year 2 for $110,000, calculate the carrying amount of the machine at the end of year 2.
3. Prepare the
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