At the beginning of the year, Grillo Industries bought three used machines from

Question

At the beginning of the year, Grillo Industries bought three used machines from Freeman Incorporated. The machines immediately were overhauled, installed, and started operating. Because the machines were different, each was recorded separately in the accounts Machine A Machine B Machine C Cost of the asset Installation costs Renovation costs prior to use Repairs after production began $9,000 $38,200 $22,000 1,200 2.200 700 800 600 500 2,100 1,700 600 By the end of the first year, each machine had been operating 8,000 hours. Required 1 omue the cost df ach machine. Cost o

Explanation / Answer

Machine A

Machine B

Machine C

Cost of Asset

$                    9,000

$        38,200

$             22,000

Installation Costs

$                        800

$          2,100

$                1,200

Renovation cost prior to Use

$                        600

$          1,700

$                2,200

Cost of Machine

$                  10,400

$        42,000

$             25,400

Cost of Machine

A

$                  10,400

B

$                  42,000

C

$                  25,400

2.

Straight line Method:

Depreciation for p.a = Cost of Asset- Salvage Value/life of Asset

                                      =$10,400-$1,000/4

                                     =$9,400/4

                                    =$2,350

Depreciation for all years is same.

Units of Production Method:

Depreciation for per hr = Cost of Asset- Salvage Value/Estimated no of hrs can be used

                                      =$4,2000-$4,500/30,000

                                     =$37,500/30,000

                                    =$1.25

Depreciation of first year=$1.25 x 8,000=$10,000

Double Decline Method:

Depreciation % under Straight line Method:=1/10 years=10%

Depreciation % under Double Decline Method:= Depreciation % under Straight line Method x 2

                                                                                     =10% x 2=20%

Depreciation for first year=$ 25,400 x 20%=$5,080

Journal Entries:

Straight line Method:

Dr Depreciation Expenses            $2,350

           Cr Accumulated Depreciation- Machine A                  $2,350

Units of Production Method:

Dr Depreciation Expenses            $10,000

           Cr Accumulated Depreciation- Machine B                  $10,000

Double Decline Method:

Dr Depreciation Expenses            $5,080

           Cr Accumulated Depreciation- Machine C                  $5,080

  

Machine A

Machine B

Machine C

Cost of Asset

$                    9,000

$        38,200

$             22,000

Installation Costs

$                        800

$          2,100

$                1,200

Renovation cost prior to Use

$                        600

$          1,700

$                2,200

Cost of Machine

$                  10,400

$        42,000

$             25,400

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