Murrays Ltd. purchased a new bus for $200,000. The company expects the bus to be used for trips between Sydney and Canberra for 10 years, or 800,000 miles, with an estimated residual value of $30,000 at the end of that time. During the 3rd year the bus was driven 96,000 miles. Calculate the depreciation expense for the 3rd year for each of the methods below. Show your solutions. I. Straight-line II. Diminishing balance at 20% p.a. III. Units-of-activity
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.
Murrays Ltd. purchased a new bus for $200,000. The company expects the bus to be used for trips between Sydney and Canberra for 10 years, or 800,000 miles, with an estimated residual value of $30,000 at the end of that time. During the 3rd year the bus was driven 96,000 miles. Calculate the
I. Straight-line
II. Diminishing balance at 20% p.a.
III. Units-of-activity
Banksia Company completed the following transactions during 2018-2019. The annual accounting period ends 30 June 2019.
a) Purchased inventory on credit at cost of AUD 16,800; perpetual inventory system is used.
b) Received a customer deposit of AUD 18,000 from ABC Ltd for services to be rendered in the future.
c) Borrowed AUD 900,000 from the bank on 1 March 2019 by giving the bank a six-month, 9% interest bearing note payable.
d) Performed AUD 8,000 of the services paid for by ABC Ltd; the rest will be rendered in August 2019.
e) Received the electricity bill for AUD 24,200, which will be paid in early July.
f) On 1 June 2019 received rent in advance of AUD 21,600 from XYZ Ltd for a 3 month lease of premises from 1 June until 31 August 2019.
g) Wages accrued in the last weekly payroll amounted to AUD 23,000 and will be paid on 5 July 2019.
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