Milk Company bought a machine on 1 January 2015 for $5,000,000. The machine has an estimated useful life of 10 years with no residual value. The company uses straight-line depreciation method, cost model for all its PPE and its balance day is 31 December. At December 31, 2016, the performance of the asset was not as expected, producing less milk than the original amount predicted. After some calculations, it was estimated that the fair value less cost to sell the machine would be $3,900,000 and the value in use of the machine would be $3,700,000. At December 31, 2017, the fair value less cost to sell the machine is $3,350,000 and the present value of expected future cash flow on the machine is $3,412,500. The recoverable amount of the machine at December 31, 2018, is estimated to be $2,975,000. On 30 September 2019, Milk Company decided to donate the machine to the Dunedin City Council for future fundraising. The fair value of the machine was estimated to be $2,800,000 at the time of the donation. RequiredPrepare the necessary journal entries to record the above transactions.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Milk Company bought a machine on 1 January 2015 for $5,000,000. The machine has an estimated useful life of 10 years with no residual value. The company uses
At December 31, 2016, the performance of the asset was not as expected, producing less milk than the original amount predicted. After some calculations, it was estimated that the fair value less cost to sell the machine would be $3,900,000 and the value in use of the machine would be $3,700,000.
At December 31, 2017, the fair value less cost to sell the machine is $3,350,000 and the present value of expected future
On 30 September 2019, Milk Company decided to donate the machine to the Dunedin City Council for future fundraising. The fair value of the machine was estimated to be $2,800,000 at the time of the donation.
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