Nevertire Ltd purchased a delivery van costing $52,000. It is expected to have a residual value of $12,000 at the end of its useful life of 4 years or 200,000 kilometres. Ignore GST. Required: a) Assume the van was purchased on 1 July 2019 and that the accounting period ends on 30 June. Calculate the depreciation expense for the year 2019–20 using each of the following depreciation methods straight-line diminishing balance (depreciation rate has been calculated as 31%) units of production (assume the van was driven 78,000 kilometres during the financial year) b) Record the adjusting entries for the depreciation at 30 June 2021 using diminishing balance method. c) Show how the van would appear in the balance sheet prepared at the end of year 2 using Straight-line method. June 1 4 Purchases 9 Sales 12 Purchases 21 Sales 26 Purchases Inventory all purchases and sales are on credit.
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.
Nevertire Ltd purchased a delivery van costing $52,000. It is expected to have a residual value of $12,000 at the end of its useful life of 4 years or 200,000 kilometres. Ignore GST.
Required:
a) Assume the van was purchased on 1 July 2019 and that the accounting period ends on 30 June.
Calculate the
straight-line
diminishing balance (depreciation rate has been calculated as 31%)
units of production (assume the van was driven 78,000 kilometres during the financial year)
b) Record the
method.
c) Show how the van would appear in the
June 1
4 Purchases
9 Sales
12 Purchases 21 Sales
26 Purchases
Inventory
all purchases and sales are on credit.
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