On 06-01-2015 Naturales S.A. acquired a machine in Japan for the manufacture of natural juices. Its purchase price was ¢ 4,500,000 and the costs of the transfer and installation amounted to ¢ 500,000. Its useful life was estimated at four years and a residual value of ¢ 500,000. Make the entries to record the depreciation as of 12-31-2015 and 12-31-2016 under the depreciation method of sum of the digits of the years. In January 2017 it is determined that the machine can extend its useful life to eight years in total if a device is added at a cost of ¢ 1,500,000. Management decides to buy the device. Record the purchase and depreciation as of 12/31/2017
On 06-01-2015 Naturales S.A. acquired a machine in Japan for the manufacture of natural juices. Its purchase price was ¢ 4,500,000 and the costs of the transfer and installation amounted to ¢ 500,000. Its useful life was estimated at four years and a residual value of ¢ 500,000. Make the entries to record the
Solution :
Requirement 1
a)Make the entries to record the depreciation as of 12-31-2015 and 12-31-2016 under the depreciation method of sum of the digits of the years.
Given :
Purchase price of machine =4,500,000
Cost of transfer and installation =500,000
Total cost of machine =4,500,000 + 500,000
=5,000,000
Date of purchase =06-01-2015
Useful life =4 years
Residual value =500,000
Depreciable base =5,000,000 – 500,000
=4,500,000
Calculation of depreciation under sum of digits of the year
Depreciation as of 12-31-2015 (number of months in 2015=7 months)
= depreciable base * remaining life / sum of the years digit * 7 /12
= 4,500,000 * 4/(1+2+3+4) * 7/12
=4,500,000 * 4 /10 * 7/12
=1,050,000
Depreciation as of 12-31-2016
=4,500,000 * 4/(1+2+3+4) * 5/12 + 4,500,000 * 3/(1+2+3+4) * 7/12
=750000 + 787500
=1537500
Journal entry
On 12-31-2015
Depreciation expense debit 1050000
To machine 1050000
On 12-31-2016
Depreciation expense debit 1537500
To machine 1537500
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