Chapter+15+-2209

Chapter+15+-2209 - Exercise 15.8 A. Depreciation, financial...

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Exercise 15.8 Depreciation, financial position and management decision making A. If using the internal information available to management – At 30 June 2009, useful lives expired are - Plant an Equipment – 1 year Motor Vehicle – 3 years Therefore % of useful life expired is - Plant and Equipment – 25% Motor Vehicle – 75% If using only the information contained in the balance sheet – Plant & Equipment Motor Vehicle % of U/L expired = Accum Depreciation = $20 000 $18 000 Ave Recorded Cost = $90 000 $30 000 = 22.2% 60% B. Under IAS 16/AASB 116, management will need to assess whether to revise the useful life of the motor vehicle. If it is decided that the useful life is not to be changed, then the normal depreciation charge will apply in 2009-2010, and the vehicle will not be used after that date since management would be implying that the vehicle has no further useful life. It should then be sold (traded-in) for an amount approximating its residual value. A new motor vehicle would need to be purchased, and the method of financing the purchase would need to be determined. If the life of the vehicle is expected to go beyond its originally expected 4 years, the asset’s depreciation charge must be adjusted accordingly. C. Information provided indicates that the straight-line method of depreciation is being used. Assuming no revision of the useful lives of the assets – Depreciation - Plant and Equipment $20 000 Motor Vehicle $6 000
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The general journal to record annual depreciation charge would be: 20 000 Depreciation Expense – Motor Vehicle 6 000 20 000 Accumulated Depreciation – Motor Vehicle 6 000 Record annual depreciation expense to 30 June 2007. Accumulated Depreciation – Motor Vehicle 24 000 Carrying amount of Vehicle Disposed of 6 000 Motor Vehicle $30 000 Elimination for carrying amount of expired asset D. CLANDESTINE LTD Balance Sheet as at 30 June 2010 NON-CURRENT ASSETS Property, Plant and Equipment: Plant and Equipment (at cost) $90 000 Less : Accumulated Depreciation 40 000 $50 000 $50 000 NOTE: Given the information in the question, the useful life of the motor vehicle has not been revised. Therefore, since the motor vehicle is considered to have no further economic benefits to the company, it is written off to expense and would not appear in the balance sheet. 2
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Depreciation methods Straight line Diminishing-balance Sum-of-years'-digits Year Depre- Carrying Depre- Carrying Depre- Carrying ciation amount ciation amount ciation amount Acquisition $170 000 $170 000 $170 000 1 $40 000 130 000 $85 000 85 000 $64 000 106 000 2 40 000 90 000 42 500 42 500 48 000 58 000 3 40 000 50 000 21 250 21 250 32 000 26 000 4 40 000 10 000 11 250 10 000 16 000 10 000 Diminishing-balance rate = 1 - 4 10 000 = 50% approx. 170 000
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This note was uploaded on 07/29/2011 for the course BUS 444 taught by Professor Lynn during the Spring '11 term at Keuka.

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Chapter+15+-2209 - Exercise 15.8 A. Depreciation, financial...

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