Assessment 2 part A

DESCRIPTION DEP. METHOD USEFUL COST DEPRECIATION DEP. RESIDUAL DISPOSAL PROFIT
LIFE RATE VALUE VALUE

Computer Straight - line 4 2,500 625 0.25 1,875 2,000 125

method

Coffee Straight-line 5 5,000 1,000 0.20 4,000 4,000

Equipment method

Company Car Straight-line 8 20,000 2,500 0.13 17,500 16,000 1,500

method

PRIME COST (STRAIGHT LINE) METHOD

The prime cost method assumes that the value of a depreciating asset decreases uniformly
over its effective life.

FORMULA

ASSETS COST x ( DAYS HELD / 365 ) x ( 100 % , ASSETS EFFECTIVE LIFE )

COMPUTER DEPRECIATION

USEFUL LIFE 4

COST 2,500

DEPRECIATION 625

DEPRECIATION RATE 25 %

RESIDUAL VALUE 1,875

DISPOSAL VALUE 2,000

PROFIT 125

2.500 x ( 365 / 365tx25 % - $ 625

 COFFEE EQUIPMENT DEPRECIATION

USEFUL LIFE 5

COST 5,000

DEPRECIATION 1,000

DEPRECIATION RATE 20 %

RESIDUAL VALUE 4,000

DISPOSAL VALUE 4,000

PROFIT

5.000 x ( 365365 ) x 20 % - $ 1.000

COMPANY CAR DEPRECIATION

USEFUL LIFE 8

COST 20,000

DEPRECIATION 2,500

DEPRECIATION RATE 13 %

RESIDUAL VALUE 17,500

DISPOSAL VALUE 16,000

PROFIT 1,500

20.000 x ( 365/365 ) x 13 % = $ 2.500

 Assessment 2 part B

1. Computer purchase in cash.

Date Entry No. Accounts and Debit Credit

explanation

7/1/2012 1 PPE Computer 2,500

Cash 2,500

2. Depreciation computer

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 2 Depreciation expense 625

Accumulated depreciation 625

3. Computer sale

Date Entry No. Accounts and Debit Credit

explanation

6/30/2013 3 Cash 2,000

Accumulated 625
depreciation

PPE Computer 2,500

Gain on disposal 125

 4. Transfer profit or loss.

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 4 Gain on disposal 125

Profit and loss 125

5. Coffee equipment purchase in cash.

Date Entry No Accounts and explanation Debit Credit

7 / 1 / 2012 5 PPE Coffee equipment 5,000

Cash 5,000

6. Depreciation coffee equipment

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 6 Depreciation expense 1,000

Accumulated depreciation 1,000

7. Coffee equipment sale

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 7 Cash 4.000

Accumulated depreciation 1,000

PPE Coffee equipment 5,000

8. Company car purchase in cash.

Date Entry No Accounts and explanation Debit Credit

7 / 1 / 2012 8 PPE Company car 20,000

Cash 20,000

9. Depreciation Company car

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 9 Depreciation expense 2,500

Accumulated depreciation 2,500

10. Company car sale

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 10 Cash 16,000

Accumulated depreciation 2,500

Loss on disposal 1,500

PPE Company car 20,000

11. Transfer profit or loss.

Date Entry No Accounts and explanation Debit Credit

6 / 30 / 2013 11 Profit and loss 1,500

Loss on disposal 1,500