MUHAMMAD HARIS NAWAZ
22348
PRINCIPLES OF ACCOUNTING
ASSIGNMENT
QUESTION F-4:
i. The fair value of land is not available; therefore, the land shall be
recognized initially at fair value of assets given in exchange i.e.; trucks and
cash paid. Rs. 147,000 + 51,000 = Rs. 198,000
ii. The gain on exchange transaction is Rs. 21,000 [Rs. 147,000 fair value – Rs.
126,000 carrying value).
iii.
DATE Account Title LP DEBIT CREDIT
Land 198000
Cash 51000
Truck 126000
Revaluation Surplus 21000
QUESTION#1:
i. Yes, if capital expenditure is erroneously treated as a revenue
expenditure, it will overstate the expenditure and as a result it will
understate the net income of current year. Because capital
expenditure is associated with the plant asset, it is a part of balance
sheet and so if it will be entered as revenue expenditure it will
increase the expenses of the company which in turn lower the net
income of the firm.
ii. Statement D best describes the nature of depreciation i.e.;
“Allocation of the cost of a plant asset to the periods in which
services are received from the asset.”
iii. Depreciation is the cost of allocation of the use of asset over its useful
life so it should continue to be charged even for an asset whose
market value is increasing. One should record depreciation regardless
of increase in fair market value as it gives a better estimate of the
actual book value of the machine if we plan to sell an asset and to
better estimate about gain or loss on disposal.
iv. I disagree. The corporation should continue to charge the
depreciation, because we are not recording to reduce the book value
of asset but for the allocation of use of asset over its useful life. It
should continue to charge depreciation regardless of market value.
QUESTION#2:
a) January 2009 purchase price = 50000
50000−5000
Depreciation per year using SLM = 5
=9000
Estimated book value on Jan 1, 2012 = 50,000−27,000=23,000
Sale on Jan1, 2012=11,000
Estimated loss =12,000
Date Account Title LP Debit Credit
Jan 2012 Cash 11,000
Accumulated 27,000
Depreciation
Loss on Disposal 12,000
Equipment 50,000
b)
Sale of 1st Jan 2012= 28000
Profit on disposal= 5000
DATE Account Title LP Debit Credit
Jan 1, 2012 Cash 28000
Accumulated Depreciation 27000
Profit on Disposal 5000
Equipment 50000
QUESTION#11B-3:
Del Mar Electronics
Cost of the equipment= 256840
Salvage Value= 4480
Estimated Life= 5 years
4480
Straight Line= 256480− 5 =50400 per year
YEAR Computation Depreciation Accumulated Book Value
Expense Depreciation
1 252000*1/5 50400 50400 201600
2 252000*1/5 50400 100800 151200
3 252000*1/5 50400 151200 108000
4 252000*1/5 50400 201600 50400
5 252000*1/5 50400 252000 0
Cost of the equipment= 256840
Salvage Value= 4480
Estimated Rate= 40%
Straight Line =256480-4480=252000
YEAR Computation Depreciation Accumulated Book Value
Expense Depreciation
1 252000*40% 100800 100800 151200
2 151200*40% 60480 161280 90720
3 90720*40% 36288 197568 54432
4 54432*40% 21773 213941 32659
5 32659*40% 13064 227005 19595
QUESTION#11B-4:
Cost Of Machine=528000
Residual Value= 48000
Estimated Life= 5 years
Depreciation expense using SLM=528000-48000/5= 96000
1st year Depreciation= 96000*9/12= 72000
Jan 2, 1984 repairs on machine= 114000
Accumulated Depreciation at Jan 2, 1984= 264000
Current Book Value= 264000+114000= 378000
Revised Estimated Life= 4 years from 1984
Revised Estimated Depreciation= 378000-48000/4= 82500
Date Account Title L Debit Credit
P
Apr 1 Machine 52800
1981 Cash 0 52800
0
Dec 31 Depreciation Expense 72000
1981 Accumulated Depreciation 72000
Dec 31 Depreciation Expense 96000
1982 Accumulated Depreciation 96000
Dec 31 Depreciation Expense 96000
1983 Accumulated Depreciation 96000
Jan 2 Equipment 11400
1984 Cash 0 11400
0
Dec 31 Depreciation Expense 82500
1984 Accumulated Depreciation 82500
QUESTION#11A-5:
Machine A (Jan 1, Year 8)
Cost of machine =97,200; estimated residual value=0; estimated useful life= 6 years
33
Depreciation expense using double declining balance year 8= 97,200 × =32,400
100
33
Depreciation expense using double declining balance-year 9= 64,800 × =21,600
100
Year 8 accumulated depreciation = 32,400
Year 9 accumulated depreciation = 32,400 + 21,600=54,000
Machine B (Jan 30, Year 8)
Cost of machine =151,200; estimated residual value=15120; estimated useful life=
8 years
Depreciation expense using straight line method year 8
15120 6
¿ 151,200− × =8505
8 12
Depreciation expense using straight line method year 9=
15120
¿ 151,200− =17010
8
Year 8 accumulated depreciation = 8505
Year 9 accumulated depreciation = 8505 + 17010=25515
Machine C (Jan 1, Year 9)
Cost of machine =100800; estimated residual value=1800; estimated useful life=
10 years
1800
Depreciation expense using straight line method year 9= 100,800− =9900
10
Year 9 accumulated depreciation = 9900
Machine D (Jan 1, Year 10)
No accumulated depreciation for year 9
b)
Machin Methods of Date of Cost Estimated Amount to Useful Accumulated Depreciation
e depreciation acquisition Residual be Life Depreciation expense year 10
Value depreciated Years Dec 1 Year 9
A Declining Jan 1 Year 97200 0 43200 6 54000 14400
Balance 8
B Straight Line June 30 151200 15120 110565 8 25515 17010
Year 8
C Straight Line Jan 1 Year 100800 1800 89100 10 9900 9900
9
D Declining Jan 1 Year 118800 0 118800 12 0 19800
Balance 10
QUESTION (DO IT):
Account Title Debit Credit
Cash 17000
Accumulated 16000
Depreciation- Truck
Truck 30000
Gain on Disposal of Truck 3000
Cash 10000
Loss on Disposal of Truck 4000
Accumulated 16000
Depreciation-Truck
Truck 30000
