202589-11-54P

AID: 7725 | 1/06/2015

Provisions regarding group depreciation

1. Group of assets needs to be determined. This is generally a homogeneous set of
assets with similar useful lives and usage pattern.
2. Depreciation is under the straight line balance method
3. Basis the useful life of the group - the depreciation rate is determined which is
applicable to the group.
4. Once any asset of the group is disposed of, there is no gain or loss recognized. The
same gets adjusted to the accumulated depreciation account i.e. The Original cost of
the asset gets credit to the original cost of the group and the same value is debited to
the group accumulated depreciation account.
5. Depreciation rate computed earlier continues.
Compute the group depreciation rate under the Straight line balance method
Particulars
Year
Original cost
Number of Machines
Original cost of one
unit
Average life

Amount $
2010
$75,000
20
$14,000
5 years

100
Average Life
20%

Depreciation Rate =

List the Depreciation and retirement schedule:

Based on the principles listed above - below is the table which depicts the periodic
depreciation and also the retirement adjustment.
1. Depreciation for the year is calculated for the opening balance of the original cost.
For years 2010 /2011 and 2012- depreciation is 20% of $75,000 i.e. $14,000.
2. For every set of retirements. The original cost of the group gets reduced by the
original cost of each unit disposed. The same value also gets reduced from the
accumulated depreciation.
3. Since the retirements are at the end of the year. The same gets adjusted after the
depreciation charge is taken in.
4. At the end of 2013 - the negative balance of $1400 indicates the loss on the last
disposal.
Prepare depreciation schedule:
Original Cost
Year

Beginning
Balance ($)

2008 Purchased
2008 Depreciation

75,000

2009 Depreciation

Accumulated
Depreciation
Transaction (5)

Depreciation for Adjustment Closing

the year
(5)
Balance
(5)
(5)

75,000
14,000

14,000

75,000

14,000

28,000

2010 Depreciation
2010 Retirement

75,000
75,000

14,000
(7,500)

(7,500)

42,000
34,500

2011 Depreciation
2011 Retirement

67,500
67,500

(14,000)

(14,000)

47,100
33,100

2012 Depreciation
2012 Retirement

53,500
53,500

(28,000)

(28,000)

42,900
14,900

2013 Depreciation
2013 Retirement

25,500
25,500

(25,500)

19,100
-3.000

12,600
9,800
4,200
(25,500)

Prepare the Journal entries:

Date
Account titles
31 Dec 10 Depreciation charge
Accumulated Depreciation
[To record the depreciation charge for 2010]
Date
Account titles
31 Dec 11 Depreciation charge
Accumulated Depreciation
[To record the depreciation charge for 2011]

Debit $ Credit $
14,000
14,000
Debit $ Credit $
14,000
14,000

Prepare journal entry to record depreciation and retirement for the year 2010:
Date
Account titles
31 Dec 10 Depreciation charge
Accumulated Depreciation
[To record the depreciation charge for 2010]
31 Dec 10 Accumulated Depreciation
Machines

Debit $ Credit $
14,000
14,000
7,000
7,000

[To record the original cost of 2 machines adjusted to

account for the retirement]
Prepare journal entry to record depreciation and retirement for the year 2011:
Date
Account titles
Debit $ Credit $
31 Dec 11
Depreciation charge
27.000
Accumulated Depreciation
27.000
[To record the depreciation charge for 2011]
31 Dec 11

Accumulated Depreciation
30.000
Machines
30.000
[To record the original cost of 4 machines adjusted
to account for the retirement]
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Step 7 of 8
Prepare journal entry to record depreciation and retirement for the year 2012:
Date
Account titles
Debit $ Credit $
31 Dec 12
Depreciation charge
21.000
Accumulated Depreciation
21.000
[To record the depreciation charge for 2012]
31 Dec 12

Accumulated Depreciation
60.000
Machines
60.000
[To record the original cost of 8 machines adjusted
to account for the retirement]
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Step 8 of 8
Prepare journal entry to record depreciation and retirement for the year 2013:
Date
Account titles
Debit $ Credit $
31
Depreciation charge
9.000
Dec
13
Accumulated Depreciation
9.000
[To record the d epreciation charge for 2013]
31
Dec
13

Accumulated Depreciation

42.000

Loss on disposal
Machines
[To record the original cost of 6 machines adjusted to account for the
retirement and the resultant loss on disposal of the entire group]
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3.000
45.000