Chapter 10, Problem 4APSA

To determine

Introduction:

Asset is a term used to define a resource owned by a company against which some income will earn in near future and that income will expressed in monetary terms. Recording of an asset is done via journal entry and represented in Balance sheet as an Asset.

Depreciation is a term used to indicate reduction in value of assets occurred due to frequent use, wear and tear, changes in technology etc. it is recorded in statement of accounts as expenditure however there is no outflow of cash.

Straight line method is a method to be used for computing depreciation using Formula under which cost of asset is depreciated equally over the useful life of asset.

To determine:

Journalize the entries of the events occurred

Answer to Problem 4APSA

Solution:

Journal entry will be recorded as under:

In the books of Champion Contractors

			$	$
01.01.2014	Equipment A/c	Dr.	300600
	To Cash A/c	Cr.		300600
	(Being asset recorded)
03.01.2014	Equipment A/c	Dr.	4800
	To Cash A/c	Cr.		4800
	(Being asset recorded)
31.12.2014	Depreciation A/c	Dr.	70850
	To Accumulated Depreciation A/c	Cr.		70850
	(Being Depreciation on Asset recorded)
01.01.2015	Equipment A/c	Dr.	5400
	To Cash A/c	Cr.		5400
	(Being asset recorded)
17.02.2015	Repair & Maintenance A/c	Dr.	820
	To Cash A/c	Cr.		820
	(Being repair expenses on asset recorded)
31.12.2015	Depreciation A/c	Dr.	43590
	To Accumulated Depreciation A/c	Cr.		43590
	(Being Depreciation on Asset recorded)

Explanation of Solution

Explanation:

Year 2014

Given:

Cost of Asset for the year 2014 is $ 305400,
Residual value is $ 22000 (i.e. 20600+1400),
Useful life of Copy machine is 4 Years

Formula used:

For computation of cost of Equipment

Cost of Machine	$
Original value of asset at the beginning of year	xxxx
Add: Expenditure capitalized during the year	xxxx
Less: Depreciation for the year	xxxx
Asset value at the end of year	xxxx

For calculating Depreciation under straight line method

Cost of Asset- Residual Value
Useful life of Asset

Calculation:

*Computation of Cost of Equipment

Cost of Equipment	$
Cash	287600
Sales tax	11500
Transportation	1500
A.C. installation	4800
Total	305400

$ 305400- $ 22000
    4
$ 283400/4
$ 70850

Year 2015

Given:

Cost of Asset for the year 2015 is $ 305400,
Residual value is $ 22000 (i.e. 20600+1400),
Useful life of Copy machine is remaining 3 Years which further increased by 2 Years so, 5years

Formula used:

For computation of cost of Equipment

Cost of Machine	$
Original value of asset at the beginning of year	xxxx
Add: Expenditure capitalized during the year	xxxx
Less: Depreciation for the year	xxxx
Asset value at the end of year	xxxx

For calculating Depreciation under straight line method

Cost of Asset- Residual Value
Useful life of Asset

Calculation:

Cost of Equipment is computed as follows:

Cost of Equipment	$
Asset value in the year 2014	305400
Less: Depreciation for the year 2014	70850
Asset value at the beginning of year 2015	234550
Add: to overhaul loader’s engine*	5400
Cost at the end of year 2015	239950

*Add in the cost of asset because it increases the useful life of assets

$ 239950- $ 22000
    5
$ 217950/5
$ 43590

Conclusion:

Events and transaction are recorded in the form of journal entries as and when it occurred.

Conclusion

Events and transaction are recorded in the form of journal entries as and when it occurred.