Methods of Derecognizing
Methods of derecognizing a non-current asset
Deduhin Ltd acquired two new machines for cash on 1 January 2014. The cost of machine A was $400 000, and of machine B, $600 000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $20 000 for machine A and $50 000 for machine B.
Because of technological advances, Deduhin Ltd decided to replace machine A. It traded in machine A on 31 March 2018 for a new machine, C, which cost $420 000. A $200 000 trade-in was allowed for machine A, and the balance of machine C’s cost was paid in cash. Machine C was expected to have a useful life of 8 years and a residual value of $20 000.
On 2 July 2018, extensive repairs were carried out on machine B for $66 000 cash. Deduhin Ltd expected these repairs to extend machine B’s useful life by 4 years and it revised machine B’s estimated residual value to $19 500. Machine B was eventually sold on 1 April 2020 for $300 000 cash.
Deduhin Ltd uses the straight-line depreciation method, recording depreciation to the nearest whole month. The end of the reporting period is 30 June.
Required
- Prepare general journal entries to record the above transactions and depreciation journal entries required at the end of each reporting period up to 30 June 2020.
- Prepare the following ledger accounts for the period 1 January 2014 to 1 July 2020:
- Machinery
- Accumulated Depreciation – Machinery
DEDUHIN LTD
General Journal
2014 | |||
Jan 1 |
Machinery |
1 000 000 | |
Cash at Bank |
1 000 000 | ||
Purchase of machines A and B. | |||
June 30 |
Depreciation Expense – Machinery |
46 500 | |
Accum. Depreciation – Machinery |
46 500 | ||
Depreciation of machines A and B. | |||
Mach A: (400 000 – 20 000)/10 ´ ½ = $19 000 | |||
Mach B: (600 000 – 50 000)/10 ´ ½ = $27 500 | |||
2015 | |||
June 30 |
Depreciation Expense – Machinery |
93 000 | |
Accum. Depreciation – Machinery |
93 000 | ||
Depreciation of machines A and B. | |||
Mach A: (400 000 – 20 000)/10 = $38 000 | |||
Mach B: (600 000 – 50 000)/10 = $55 000 | |||
2016 | |||
June 30 |
Depreciation Expense – Machinery |
93 000 | |
Accum. Depreciation – Machinery |
93 000 | ||
Depreciation of machines A and B. | |||
2017 | |||
June 30 |
Depreciation Expense – Machinery |
93 000 | |
Accum. Depreciation – Machinery |
93 000 | ||
Depreciation of machines A and B. | |||
2018 | |||
Mar. 31 |
Depreciation Expense – Machinery |
28 500 | |
Accum. Depreciation – Machinery |
28 500 | ||
Depreciation of machine A to date of sale. | |||
Mach A: $38 000 ´ 9/12 =$28 500 | |||
Mar 31 |
Machinery [C] |
420 000 | |
Cash at Bank |
220 000 | ||
Proceeds on Sale of Machine |
200 000 | ||
Trade-in machine A for Machine C. | |||
Carrying Amount of Machine Sold |
238 500 | ||
Accumulated Depreciation – Machinery |
161 500 | ||
Machinery |
400 000 | ||
Write off machine traded in. | |||
$161 500 = ($38 000 ´ 3) + 19 000 + 28 500 | |||
June 30 |
Depreciation Expense – Machinery |
67 500 | |
Accum. Depreciation – Machinery |
67 500 | ||
Depreciation of machines B and C. | |||
Mach B: $55 000 | |||
Mach C: ($420 000 – 20 000)/8 ´ ¼ = $12 500 | |||
July 2 |
Accumulated Depreciation – Machinery |
247 500 | |
Machinery [B] |
247 500 | ||
Write back accumulated depreciation on machine B on overhaul. | |||
Machinery [B] |
66 000 | ||
Cash at Bank |
66 000 | ||
Overhaul of machine B. | |||
New carrying amount of machine B = 600 000 – 247 500 + 66 000 = $418 500 | |||
Remaining useful life is now 9½ years | |||
2019 | |||
30 June |
Depreciation Expense – Machinery |
92 000 | |
Accum. Depreciation – Machinery |
92 000 | ||
Depreciation of machines B and C. | |||
Mach B: ($418 500 – 19 500) ÷ 9½ = 42 000 | |||
Mach C: ($420 000 – 20 000) /8 = 50 000 | |||
2020 | |||
April 1 |
Depreciation Expense – Machinery |
31 500 | |
Accum. Depreciation – Machinery |
31 500 | ||
Depreciation of machine B before sale. | |||
($418 500 – 19 500)÷ 9½ ´ 9/12= 31 500 | |||
April 1 |
Cash at Bank |
300 000 | |
Proceeds on Sale of Machine |
300 000 | ||
Sale of machine B. | |||
Carrying Amount of Machine Sold |
345 000 | ||
Accumulated Depreciation – Machinery |
73 500 | ||
Machinery |
418 500 | ||
Write off machine B. | |||
$73 500 = 42 000 + 31 500 | |||
June 30 |
Depreciation Expense – Machinery |
50 000 | |
Accum. Depreciation – Machinery |
50 000 | ||
Depreciation of machine C. |
The following accounts (in T account format) should be balanced at least on a yearly basis but have not been on the grounds of simplicity.
Machinery | |||||
1/1/14 |
Cash at bank |
$1 000 000 |
1/4/18 |
Carrying amount |
400 000 |
31/3/18 |
Cash and proceeds on sale |
420 000 |
2/7/18 |
Accum. depreciation |
247 500 |
2/7/18 |
Cash at bank |
66 000 |
1/4/20 |
Carrying amount |
418 500 |
30/6/20 |
Balance c/d |
420 000 | |||
1 486 000 |
1 486 000 | ||||
1/7/20 |
Balance b/d |
420 000 |
Accumulated Depreciation – Machinery | |||||
1/4/18 |
Carrying amount and machinery. |
$161 500 |
30/6/14 |
Depreciation |
$46 500 |
2/7/18 |
Machinery |
247 500 |
30/6/15 |
Depreciation |
93 000 |
1/4/20 |
Carrying amount and machinery |
73 500 |
30/6/16 |
Depreciation |
93 000 |
30/6/17 |
Depreciation |
93 000 | |||
31/3/18 |
Depreciation |
28 500 | |||
30/6/18 |
Depreciation |
67 500 | |||
30/6/19 |
Depreciation |
92 000 | |||
1/4/20 |
Depreciation |
31 500 | |||
30/6/20 |
Balance c/d |
112 500 |
30/6/20 |
Depreciation |
50 000 |
595 000 |
595 000 | ||||
1/7/20 |
Balance b/d |
112 500 |
Revaluation, depreciation, disposal
On 1 January 2014, Nicolaidis Ltd purchased two identical new machines at a total cost of $700 000 plus GST. It was estimated that the machines would have a useful life of 10 years and a residual value of $50 000 each. Nicolaidis Ltd uses the straight-line method of depreciation for all of its equipment. The company’s end of reporting period is 31 December.
Required
- Record the purchase of the trucks on 1 January 2014.
- Record the depreciation expense on the trucks for 2019.
- Assume that early in 2020 the company revalued the machines upwards by $80 000 each and assessed that the machines would last 6 more years instead of 4 but that the residual value would be $80 000. Record all journal entries for the trucks in 2020.
- Make the necessary entries to record the sale of one of the machines on 31 December 2020. The machine was sold for $200 000 plus GST. (Assume that the two machines had the same carrying amount, which equalled their fair values at this date.)
- How much depreciation expense would be recorded on the second machine during 2025 if it were still being used and if its residual value were still $50 000? Why?
2014 | |||
Jan. 1 |
Machinery |
700 000 | |
GST Receivable |
70 000 | ||
Cash at Bank |
770 000 | ||
Purchase of two machines. |
2019 |
Depreciation – Machinery |
60 000 | |
31 Dec |
Accumulated Depreciation – Machinery |
60 000 | |
Depreciate trucks ([$700 000 – $100 000] ¸ 10) |
2020 | |||
Jan |
Accumulated Depreciation – Machinery |
360 000 | |
Machinery |
360 000 | ||
Write back accumulated depreciation on revaluation $60 000 ´ 6 | |||
Machinery |
160 000 | ||
Gain on Revaluation – Machinery (OCI) |
160 000 | ||
Revalue Machinery. | |||
OR | |||
Accumulated Depreciation – Machinery |
360 000 | ||
Machinery |
200 000 | ||
Gain on Revaluation – Machinery (OCI) |
160 000 | ||
(i.e. previous two entries combined.) |
Dec. 31 |
Depreciation Expense – Machinery |
70 000 | |
Accumulated Depreciation – Machinery |
70 000 | ||
Depreciate trucks. ([$500 000* – $80 000] ¸ 6) | |||
*$500,000 = $700,000 -$360,000+160,000 |
Dec. 31 |
Cash at Bank |
220 000 | |
GST Payable |
20 000 | ||
Proceeds from Sale of Machinery |
200 000 | ||
Sale of machine. | |||
Carrying Amount of Machinery Sold |
215 000 | ||
Accumulated Depreciation – Machinery |
35 000 | ||
Machinery |
250 000 | ||
Write off machine sold. |
Early 2020 value of one machine = $250k.
Depreciation $35k/year.
31/12/2020 $250K-35k=$215k
31/12/2021 $215k-35k=$180k
31/12/2022 $180k-35k=$145k
31/12/2023 $145k-35k=$110k
31/12/2024 $110k-35k=$75k
31/12/2025 $75K-25K=$50K
Depreciation in year ended 31/12/2025 is $25k to leave a residual of $50k.
Buy Methods of Derecognizing Answers Online
Talk to our expert to get the help with Methods of Derecognizing to complete your assessment on time and boost your grades now
The main aim/motive of the management assignment help services is to get connect with a greater number of students, and effectively help, and support them in getting completing their assignments the students also get find this a wonderful opportunity where they could effectively learn more about their topics, as the experts also have the best team members with them in which all the members effectively support each other to get complete their diploma assignments. They complete the assessments of the students in an appropriate manner and deliver them back to the students before the due date of the assignment so that the students could timely submit this, and can score higher marks. The experts of the assignment help services at urgenthomework.com are so much skilled, capable, talented, and experienced in their field of programming homework help writing assignments, so, for this, they can effectively write the best economics assignment help services.
Get Online Support for Methods of Derecognizing Assignment Help Online
Resources
- 24 x 7 Availability.
- Trained and Certified Experts.
- Deadline Guaranteed.
- Plagiarism Free.
- Privacy Guaranteed.
- Free download.
- Online help for all project.
- Homework Help Services
Testimonials
Urgenthomework helped me with finance homework problems and taught math portion of my course as well. Initially, I used a tutor that taught me math course I felt that as if I was not getting the help I needed. With the help of Urgenthomework, I got precisely where I was weak: Sheryl. Read More