Se nsational Company replaced a portion of a building for P2,500,000. Before the
ID: 2537701 • Letter: S
Question
Se nsational Company replaced a portion of a building for P2,500,000. Before the replacement, the building and accumulated depreciation accounts were Building (original life, 25 years) Accumulated depreciation (5 years expired) 9,000,000 1,800,000 Required: Prepare the journal entry to record the replacement and subsequent annual depreciation under each of the following assumptions: 1. The portion of the building being replaced had an original cost of P2,000,000. 2. Separate identification of the replaced part is not The appropriate discount rate is 5%. The practicable. present value ofExplanation / Answer
OPTION 1
BUILDING REPLACED CAN BE SEPERATELY IDENTIFIED
THE DISCRAD ENTRY FOR REPLACED BUILDING IS
DEBIT CREDIT
LOSS ACCOUNT DR 1600000
ACCUMULATED DEPRECIATION ACCOUNT DR 4000000
TO BUILDING ACCOUNT 2000000
( DICARDED BUILDING TRASFERRED TO LOSS ACOUNT)
WORKING TOTAL BUILDING IS OF RS. 9000000 AND DEPRECIATION FOR 5 YEAR IS 1800000
9000000 /25 IS RS. 360000 PER YEAR
AND FOR 5 YEAR IT IS 360000*5 = RS. 1800000
PROPORTIONATE DEPRECIATION FOR 2000000 COMES TO 400000 AND PER YEAR RS. 80000
DEPRECIATION AFTER NE ADDITION
OLD PORTION
BUILDING 7000000 ( 9000000-2000000)
ACCUMULATED DEPRECIATION 1400000 (1800000-400000)
FOR NEW BUIDING
COST 2500000
DEPRECIATION PER YEAR 100000 IE 2500000/25 YEAR
FOR OLD PORTION
COST 7000000
DEPRECIATION PER YEAR 280000 AS USAL SINCE STARTING
(2) SEPERATE IDENTIFICATION IS NOT POSSIBLE THAN
ACCUMULATED DEPRECIATION IS TO BE REDUCED BY 432000 (2000000- 2000000*.784)
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