On Jan 1, 20 10, you purchased a vehicle costing $28,000 with additional costs o

Question

On Jan 1, 20 10, you purchased a vehicle costing $28,000 with additional costs of taxes, $1,750 pping costs, $250. Based on historical records, you estimate the useful life to be 8 years and the estimated salvage value to be $1,500. You depreciate this vehicle using the double- declining balance depreciation method. On January , 2014, you revise the asset's total estimated useful life from 8 years to 9 years and change the estimated salvage value to $1,000. Required: Compute the depreciation for each year and a) prepare the appropriate adjusting journal entry to record the depreciation for years 1, 5, and 9 and b) show the balance sheet presentation of the vehicle for years 5 and 9. (Round answers to 0 decimal places) 1) ) Balance Sheet Account Titles and Explanation P.R.Debit

Explanation / Answer

cost for depriciation of assets on 1-1-2010 = purchasing cost of vehicle(28000) + additional cost of taxes(1750) + shipping costs(250)

= 28000+1750+250

= 30000

salvage value at the end of useful life of vehicle which is 8 years = 1500

under double declining balance method rate of dep. = 1/8*2= 25%

now the depriciation table of the same is as follows -

on 1st of jan'2014 the book value of assets = 9492.2

now the estimated salvage value is 1000 and remaining estimated useful life = 5 years,

rate of dep. under straight line = 1/5

= 20%

under double declining balance method = 2*20% = 40%

then the depriciation table would be as follows -

journal entry would be as follows -

at the time of sale the following journal entry would be passed

cash a/c Dr. 1000

To machine a/c 738.1

To profit on sale 261.9

Please comment in case of further clarification requried.

Year NBV DDBM (2*SL*Begnning NBV) Net book value at the end of the years 1 30000 7500 22500 2 22500 5625 16875 3 16875 4218.8 12656.3 4 12656.3 3164.1 9492.2 5 9492.2 2373.0 7119.1 6 7119.1 1779.8 5339.4 7 5339.4 1334.8 4004.5 8 4004.5 1001.1 3003.4

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