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Requirement – 1
It refers to the reduction in the monetary value of fixed tangible assets over its useful life due to its wear and tear or, obsolescence. In other words, it is the method of distributing the cost of tangible fixed assets over its estimated useful life.
Amortization:
It is the process of allocating the value of an intangible asset over its definite useful life.
Straight-line Depreciation:
Under the straight-line method of depreciation, the same amount of depreciation is allocated every year over the estimated useful life of an asset. The formula to calculate the depreciation cost of the asset using the residual value is shown as below:
Double-declining-balance method:
It is an accelerated method of depreciation under which the depreciation declines in each successive year until the value of asset becomes zero. Under this method, the book value (original cost less
To prepare: A schedule for analyzing the changes in each of the plant asset accounts during 2018.
Requirement – 1
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Explanation of Solution
Company C Analysis of changes in plant assets for the year ending December 31, 2018 |
||||
Particulars | Balance 12/31/17 | Increase | Decrease | Balance 12/31/18 |
Land | 175,000 | 312,500 | - | 487,500 |
Land improvements | - | 192,000 | - | 192,000 |
Buildings | 1,500,000 | 937,500 | - | 2,437,500 |
Machinery and equipment | 1,125,000 | 385,000 | 17,000 | 1,493,000 |
Automobiles and trucks | 172,000 | 12,500 | 24,000 | 160,500 |
Leasehold improvements | 216,000 | - | - | 216,000 |
Total | 3,188,000 | 1,839,500 | 41,000 | 4,986,500 |
Table (1)
Working note:
1. Calculate the total allocation amount of land and building
2. Calculate the increased value of land, land improvements, and buildings at date of exchange
Asset | Fair value ($) |
Percent of total fair value |
Initial valuation ($) |
Land | 187,500 | 25% | 312,500 |
Building | 562,500 | 75% | 937,500 |
Total | 750,000 | 100.0% | 1,250,000 |
Table (2)
(2)
Note:
Requirement – 2
To prepare: A schedule showing depreciation or amortization expenses of each asset for the year ended December 31, 2018.
Requirement – 2
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Explanation of Solution
Depreciation or amortization expenses of each asset are as follows:
Land improvements
Particulars | Amount ($) |
Cost | 192,000 |
Straight line rate
|
|
Annual depreciation | 16,000 |
Depreciation on land improvements for 2018 (March 25 to December 31,2018) |
|
Land improvements | 12,000 |
Table (3)
Buildings
Particulars | Amount ($) |
Book value, 1/1/2018 | 1,171,100 |
Add: Building acquired on 1/6/18 | 937,500 |
Total amount | 2,108,600 |
Less: 150% declining balance rate (3) | 6% |
Buildings | 126,516 |
Table (4)
Working note:
Machinery and equipment
Particulars | Amount ($) | Amount ($) |
Balance, 1/1/2018 | 1,125,000 | |
Straight-line rate
|
112,500 | |
Purchase made on 7/1/2018 | 385,000 | |
Less: Depreciation for one-half year | 19,250 | |
Depreciation on machinery and equipment for 2018 | 131,750 |
Table (5)
Automobiles and trucks
Particulars | Amount ($) | Amount ($) |
Book value , 1/1/2018 (4) | 71,675 | |
Less: Sale of truck (Book value) (5) | 11,750 | |
Amount subject to depreciation | 59,925 | |
Less: 150% declining balance rate (6) | 30% |
17,978 |
Automobile purchased on 8/30/2018 | 12,500 | |
Less: Depreciation for 2018 (September 30-Decemeber 31)
|
10% | 1,250 |
Truck sold on 9/30/2018 | 2,650 | |
Depreciation on automobiles and trucks 2018 | 21,878 |
Table (6)
Working note:
1. Calculate the book value automobiles and trucks.
2. Calculate the total book value of truck sold.
3. Calculate depreciation rate.
Leasehold improvements
Particulars | Amount ($) |
Book value , 1/1/2018 | 108,000 |
Amortization period | |
Amortization of leasehold improvements | 21,600 |
Table (7)
Determine the total depreciation and amortization expense for the year 2018.
Assets | Amount ($) |
Land improvements | 12,000 |
Buildings | 126,516 |
Machinery and equipment | 131,750 |
Automobiles and trucks | 21,878 |
Leasehold improvements | 21,600 |
Total depreciation and amortization expense | 313,744 |
Table (8)
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