Ch 10

Plant assets

5 . Net removal old house

Land = real estate = site

Company acquires real estate at cash cost 100,000 , the

property contains an old warehouse that is razed net cost
6000(7500cost less1500 salvaged materials) additional
expenditures are the attorney’s fee 1000 and broker’s
commission 8000 ...determine cost of land?.

Make entry :

Land 115,000

Cash. 115,000

Limited life

**Land isn’t a depreciable assets

E10-1 ; E10-2
E10-3: on March 1,2014 western company acquired
real estate on which it planned to construct a small
office building.the company paid $75,000 in cash.an old
warehouse on the property was razed at cost of 8,600,
the salvage materials were sold for 1700 .Additional
expenditures before construction began included 1,100
attorney’s fee .5000 real estate broker’s commission
,7800 architects’s fee and 14,000 to put in driveway and
parking...determine cost of land ?
E10-5 ; E10-7

Straight line :

Cost -salvage value =depreciable cost

13000-1000=12000
Depreciable cost / useful life in years =annual depreciation exp
12000/5 =2400

Or 1/ useful life *100. = 1/5*100 =20%

Depreciable cost *rate = 12000* 20% = 2400

Year. Depreciation exp. accumulated dep. book value (cost -acc )

1 2400. 2400. 13000 - 2400 =10,600

2. 2400. 4800. 13000 - 4800 =8200
3. 2400. 7200. 13000 - 7200 = 5800
4. 2400. 9600. 13000 - 9600 = 3400
5. 2400. 12000. 13000 - 12000. =1000

Year 2 = 2400* 2 = 4800

Year 3 , 6 months = (2400*3 + 2400*6/12)=8400
Year 4 , 8 months = ( 2400*4 + 2400 *8/12) =11200
Depreciation expense.
Accumulated depreciation

Unit of activity :
Cost - salvage value = depreciable cost
13000 - 1000 =12000
Depreciable cost /useful life in miles = depreciable cost per unit
12000 /100,000 =0.12 per unit

Year U.o.A * Dep. c/u = Annual. Acc. dep. (cost -acc)= B.v

2014 15000 * $0.12 = $1800 $1800 13000-1800= 11200

2015 30000 * 0.12 = 3600 5400 13000-5400= 7600
2016 20000 * 0.12 = 2400 7800 13000-7800= 5200
2017 25000 * 0.12 = 3000 10000 1300-10000= 2200
2018 10000 * 0.12 = 1200 12000 1300-12000= 1000

Declining balance :
1/useful life of years *2*100= 1/5*2*100 =40% declining rate

Year Beg.B.v * dep. rate = Annual. Acc. dep. (cost -acc)= B.v

2014 $13000 * 40% = $5200 $5200 13000-5200=7800

2015 7800 * 40% = 3120 8320 13000-8320=4680
2016 4680 * 40% = 1872 10192 13000-10192=2808
2017 2808 * 40% = 1123 11315 13000-11315=1685
2018 1685 - 1000. = 685 12000 13000-12000=1000

Note : first year only multiply cost by rate

**last year subtract book value of salvage value

E10-6 : Rottino company purchased a new
machine on October 1,2014 at cost 150,000. The
company estimated that the machine will have a
salvage value of 12000 the machine is expected
to be used for 10,000 working hours during 5
years life
Instructions :compute the depreciation expense
under the following methods
(a)straight line for 2014
(b) units of activity assuming machine usage
was 1700 hours
(C) Declining balance for 2014,2015
Disposal of plant assets: H.w E10-10
1- retirement
2 - sold

Retirement : 1- Cost. = Accumulated

Accumulated depreciation

Equipment
2- cost. ≠ Accumulated ======>. Loss

Accumulated depreciation
Loss on disposal

Equipment

Sale : Cash. >. Book value. ======> gain

(Cost - acc )
Depreciation expense
Accumulated depreciation

Cash
Accumulated depreciation.
Equipment
Gain on disposal

Cash. <. Book value ======> loss

(Cost - acc )

Cash
Accumulated depreciation
Loss on disposal

Equipment

Natural resources : resources under ground like (oil ,

gas , coal , minerals , wood )
Depletion: allocations of the cost of natural resources to expense over
useful life

Annual depletion expense = unit of extract * per unit

(Sold)
Inventory
Accumulated depletion

Intangible assets: E10-11, E10-12. ,E10-13

Limited life (amortized) ............ Indefinite life (not amortized)

Trade marks and Trade name ==>not amortized

Journal same as purchase assets

Adjusting : Amortization expense
Patent
E10-14

E 10-9: presented below are selected transactions at

Ridge company for 2014

Jan 1. Retired a piece of machinery that was

purchased on Jan 1,2004 the machine cost62,000 on
the date .it had a useful life of 10 years with no salvage
value.

June 30 sold a computer that was purchased on Jan

1,2011 .the computer cost 45,000 .it had a useful life of
5 years with no salvage value.the computer was sold
for 14000

Dec 31 Discarded a delivery truck that was purchased

on Jan 1 2010 the truck cost 33,000 it was depreciated
based on 6 years useful life with 3000 salvage