1. A plant asset purchased for $250,000 has an estimated life of 10 years and a
ID: 2502816 • Letter: 1
Question
1. A plant asset purchased for $250,000 has an estimated life of 10 years and a residual value of $20,000. Depreciation for the second year of use, determined by the declining-balance method at twice the straight-line rate is .
2. A plant asset purchased for $300,000 at the beginning of the year has an estimated life of 5 years and a residual value of $30,000. Depreciation for the second year, determined by the sum-of-the-years'-digits method is .
3. A plant asset with a cost of $320,000 and accumulated depreciation of $90,000, is given together with cash of $120,000 in exchange for a similar asset worth $330,000. The gain or loss recognized on the disposal (indicate by "G" or "L") is .
4. A plant asset with a cost of $270,000, estimated life of 5 years, and residual value of $45,000, is depreciated by the straight-line method. This asset is sold for $200,000 at the end of the second year of use. The gain or loss on the disposal (indicate by "G" or "L") is .
Please include all the calculations.
Explanation / Answer
1]RATE OF DEPRECIATION = (1/10)*100*2
= 20%
FIRST YEAR DEPRECIATION = (250000-20000)*20%
= 230000*20%
= 46000
SECOND YER DEPRECIATION = 20% OF [230000-46000]
= 20% OF 184000
= 36800
2] Sum of the Years' Digits = 1 + 2 + 3 + 4 +5= 15
Depreciable Base = 300000 ? 30000 = 270000
DEPRECIATION FOR THE SECOND YEAR = (4/15)*270000
= 72000
3]NET/BOOK VALUE OF OLD ASSET = 320000-90000
=230000
CASH = 120000
TOTAL VALUE PAID = NET /BOOK VALUE OF OLD ASSET + CASH
= 230000+120000
=350000
VALUE OF NEW ASSET = 330000
THEREFORE , LOSS = VALUE OF NEW ASSET - TOTAL VALUE PAID
= 330000
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