January,11 Machinery $90,000

Cash $90,000
(To record for
purchase of
machine)
December, 31 Depreciation $6,000
Expense
Accumulated $6,000
Depreciation
(to record for
depreciation for
1st year)
(90,000-18000)
/12 = 6,000
December, 31 Depreciation $6,000
Expense
Accumulated $6,000
Depreciation
(to record for
depreciation for
2nd year)

December,31 Depreciation $6,000

Expense
Accumulated $6,000
Depreciation
(to record for
depreciation for
3rd year)

December,31 Depreciation $6,000

Expense
Accumulated $6,000
Depreciation
(to record for
depreciation for
4th year)

December,31 Depreciation $3,000

Expense
Accumulated $3,000
Depreciation
(to record for
depreciation for
5th year, based
on revised
estimate of useful
 life, determined
as follows:

Cost of Machine 90,000

Less: Depreciation for 2014 – 2017 24,000

Book value at the end of 2017 66,000

Less: estimated Residual Value 18,000

Amount to be depreciated over 16 remaining years of new 48,000

Depreciation per year =48,000/16 =3,000

B.

Factors responsible for changing the useful of the asset are:

1. The machine must not have been used by the company as much as it had been previously
expected.
2. The machine must be more slowly deteriorating than it is originally expected

Problem 9.3

a.1

Costs to be depreciated include:

Cost of Shelving $12,000
Freight Charges $520
Sales Tax $780
Installation $2,700
Total cost to be depreciated $16,000

Year Computation Depreciation Accumulated Book Value

Expense Depreciation
2018 16000*1/20*9/12 $6000 $6000 $15,400
2019 16000*1/20 $800 $1,400 $14,600
2020 16000*1/20 $800 $2,200 $13,800
2021 16000*1/20 $800 $3,000 $13,00

a.2

The accelerated rate of depreciation is calculated by dividing the rate that is 200% by the number of
useful years is 20 and thus the accelerated rate comes out to be 10% (200/20)
 Year Computation Depreciation Accumulated Book Value
Expense Depreciation
2018 16000*10%*1/2 $800 $800 $15,200
2019 15200*10% $1,520 $2,320 $13,680
2020 13680*10% $1,368 $3,688 $12,312
2021 12312*10% $1,231 $4,919 $11,081

a.3

(150/20) =7.5%

Year Computation Depreciation Accumulated Book value

Expense Depreciation
2018 16000*7.5%*1./2 $600 $600 $15,400
2019 15400*10% $1,155 $1,755 $14,245
2020 14245*7.5% $1,068 $2,823 $13,177
2021 13177*7.5% $988 $3,812 $12,188

c.

The lowest book value reported at the end of the year 2021 is $ 11,081 which comes in 200% declining
balance method of depreciation. The $ 11,081 book value is not an estimate of shelving’s fair value at
the end of 2021. However, depreciation is not a process of valuation.

d.1

Description Debit Credit

Cash $1,100
Accumulated $8,600
depreciation ($9000-
$400)
Shelving $9,000
Gain on disposal of $700
asset
(to record sale of
shelving for $1100
cash)

The shelving was sold for 1100 in cash and had accumulated depreciation which is calculated by
subtracting the original cost from the book value at the time of sale which is 9000-400=8600. Thus there
is a gain on sale of shelving is credited which come to 700

d.2

Description Debit Credit

Cash $175
Accumulated $8,600
depreciation
Shelving $9,000
Loss on sale of assets $225
(to record sale of
shelving for $175 cash)