Maintenance charge 4,000 An additional component to increase capacity 3,000 Spare parts 3,500 Total 125,500 The lorry is depreciated on a straight-line basis over a four-year life and the estimated residual value $38,000. ABC Co. prepares their accounts on 31 December each year, the company policy is to charge depreciation on a month for month basis. After exactly two years and three months, the lorry is out of order and sold for $23,000. a) What amount should be used as the basis for depreciation of the lorry? b) What is the depreciable amount of the lorry? c) Calculate the depreciation on lorry for each of the years 20x1, 20x2, and 20x3.

Maintenance charge 4,000 An additional component to increase capacity 3,000 Spare parts 3,500 Total 125,500 The lorry is depreciated on a straight-line basis over a four-year life and the estimated residual value $38,000. ABC Co. prepares their accounts on 31 December each year, the company policy is to charge depreciation on a month for month basis. After exactly two years and three months, the lorry is out of order and sold for $23,000. a) What amount should be used as the basis for depreciation of the lorry? b) What is the depreciable amount of the lorry? c) Calculate the depreciation on lorry for each of the years 20x1, 20x2, and 20x3.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter11: Long-term Assets

Section: Chapter Questions

Problem 9EB: Ronson recently purchased a new boat to help ship product overseas. The following information is...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

On 1 April 20x1, ABC Co. bought a new lorry and made the following payments in relation to it:

Costs as per supplier’s list $120,000

Less: Agreed discount 10,000 110,000

Delivery charge 1,000

Installation charge 4,000

Maintenance charge 4,000

An additional component to increase capacity 3,000

Spare parts 3,500

Total 125,500

The lorry is depreciated on a straight-line basis over a four-year life and the estimated residual value $38,000. ABC Co. prepares their accounts on 31 December each year, the company policy is to charge depreciation on a month for month basis. After exactly two years and three months, the lorry is out of order and sold for $23,000.

a) What amount should be used as the basis for depreciation of the lorry?

b) What is the depreciable amount of the lorry?

c) Calculate the depreciation on lorry for each of the years 20x1, 20x2, and 20x3.

Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video

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