This document explains the formula to calculate depreciation expense for an asset based on its remaining useful life and depreciable cost. It also provides an example and journal entries related to depreciation.
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Answer 1. Depreciation expense = Remaining useful life of the asset /Sum of the years digits *Depreciable cost Year Netbookvalueatthe beginning of year Annual Depreciation expense Net book value at the end of year 2011420000120000300000 2012300000100000200000 201320000080000120000 20141200006000060000 2015600004000020000 201620000200000 Value of machine on 30th June,14$120,000 Sold machine on 30th June 14$150000 Gain on sale of machine asset$30000 General Entries at the end of accounting year S.NoDateAccount NameDebitCredit 1.30-Jun-12Depreciation Expense$100000 Accumulated Depreciation$100000 ( Being depreciation charged for the year) 2.30-Jun-13Depreciation Expense$80000 Accumulated Depreciation$80000 ( Being depreciation charged for the year) 3.30-Jun-14Depreciation Expense$60000 Accumulated Depreciation$60000 ( Being depreciation charged for the year) 4.30-Jun-14Cash$150,000 Gain on asset$30,000
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Machine asset$120,000 (being gain occurred on sale machine asset) Answer 2.Journal entry required to reflect the revaluation of the asset The carrying amount asset as on 1 July 2015 = Cost - accumulated depreciation = $100000 - $20000 Revalued $120000 i)Calculation of revaluation reserve Cost of asset = $ 100000 Accumulated Depreciation= $ 20000 Net value of asset as on 1stJuly, 15 = $80000 ii)New value of asset ( after revaluation) = $120000 Revaluation reserve= ii-i = $120000-$80000 = $40000 Journal entries DateJournal entriesDebitCredit 1 July 2015Fixed Asset$40,000 Revaluation reserve$40,000 30 June 2016Depreciation Expense$15000 Accumulated Depreciation$15000 ( Being depreciation charged for the year) Answer 3. a)Yes, goodwill has been acquired by Tamarama Ltd. Calculation of goodwill is as below: i)Fair value of assets transferred:- Cash = $70000
Fair value of land= $300000 Fair value of Plant and machinery = $250000 Total fair value of asset transferred= $70000+$300000+$250000 =$620000 ii)Amount of any non-controlling interest = Nil iii)Fair value of equity interest = Nil iv)Fair value of net asset (Bronte ltd.) Asset - $700000 Liabilities- $300000 Net assets= $400000 Goodwill = $620000+0+0-$400000 = $180000 b)As per IFRS 3, subsequent upward revaluation of goodwill is not allowed by takeover company. Answer 4. a)Present value of minimum lease PV = SUM[P/(1+r)n] + [RV/(1+r)n] Where PV = Present Value P = Annual Lease Payments $10000 0 r= Interest rate6% n = number of years in the lease term8 RV = residual value$80000 SUM[P/(1+r)n] = the total amount paid over the lease term, discounted for the interest rate. Cash1+rPeriod(1+r)n Netpresent value $1000001.0611.06$94339.62 $1000001.0621.1236$88999.64 $1000001.0631.191016$83961.92 $1000001.0641.262477$79209.36 $1000001.0651.338226$74725.81 $1000001.0661.418519$70496.05
$1000001.0671.50363$66505.71 $1000001.0681.593848$62741.23 $800001.0681.593848$50192.98 Sum$671172.37 Total present value =$671172.38 b) Formula for calculating implicit rate=(Interestรท Principal) x 100 Year Lease liability (A)Lease payment Interest (B=A*6%) Decrease in lease liability (C=100000-B) Lease liability (c/f) 2015$671172100000$40270$59730$611442 2016$611442100000$36687$63313$548129 2017$548129100000$32888$67112$481017 2018$481017100000$28861$71139$409878 2019$409878100000$24593$75407$334470 2020$334470100000$20068$79932$254538 2021$254538100000$15272$84728$169811 2022$169811100000$10189$89811$80000 While calculating the residual value, 6% implicit interest rate has been taken to calculate the value.