Task 18: Long lived assets

Breakdown
Book value of machine
Residual value
Depreciable amount

2,000,000
100,000
1,900,000

Useful life

10 years

Depreciation schedule using different method

Straight line

Units of production

Year
Depreciation expense
Accumulated depreciation

1
190,000
190,000

2
190,000
380,000

3
190,000
570,000

Year
Units produced
Depreciation expense
Accumulated depreciation

1
80,000
217,143
217,143

2
80,000
217,143
434,286

3
80,000
217,143
651,429

Difference between the two methods

Straight line
:
Constant amount of depreciation expense made every year
Units of production

Depreciation based on the amount of books produced.

Conclusion: Units of production. Depreciation method used shall best reflect the pattern which the asset's future economic benef

Capitalization of repair cost

Repair cost can only be capitalized if it extend the economic life of the asets.Otherwise, such repair cost should be expensed

Sale of machine (After 6 years)

Journal entries
Machine Cost
Accumulated dep
NBV/Carry amount

Proceeds from sale

Less: NBV
Gain/(Loss)

2,000,000
1,140,000
860,000

750,000
860,000
(110,000)

Accumulated Depreciation
Loss on disposal
Cash
Plant and equipment
To record sale of equipment

PPE
Cash
To record purchase of PPE

T accounts

Cash
Sale
Purchase

Sale

PPE

750,000
3,000,000

Accumulated Depreciation
1,140,000
1,140,000
-

Sale
Purchase

Loss on disposal
Sale

4
190,000
760,000

5
190,000
950,000

6
190,000
1,140,000

7
190,000
1,330,000

8
190,000
1,520,000

9
190,000
1,710,000

4
80,000
217,143
868,571

5
80,000
217,143
1,085,714

6
60,000
162,857
1,248,571

7
60,000
162,857
1,411,429

8
60,000
162,857
1,574,286

9
60,000
162,857
1,737,143

pattern which the asset's future economic benefit is expected to be consumed by the entity.

erwise, such repair cost should be expensed

Journal entries
1,140,000
110,000
750,000 A+
2,000,000

3,000,000 A+
3,000,000

PPE
2,000,000
2,000,000
3,000,000
3,000,000

Loss on disposal
110,000
110,000

10
190,000
1,900,000
10
60,000
162,857
1,900,000

700,000