Fundamentals of Accounting II: Case Studies and Depreciation Methods

Unit: ACC102 – Fundamentals of Accounting II

TABLE OF CONTENTS
Case study one.................................................................................................................................3
Part (a).........................................................................................................................................3
Part (b).........................................................................................................................................3
Part (c).........................................................................................................................................3
Part (d).........................................................................................................................................5
Part (e).........................................................................................................................................5
Case study two.................................................................................................................................6
Part (a).........................................................................................................................................6
Part (b).........................................................................................................................................7
Part (c).........................................................................................................................................7
Case study three...............................................................................................................................8
1. Depreciation by the straight line method.................................................................................8
2. Depreciation by Diminishing balance method........................................................................8
3. Deprecation by the sum of year digit method..........................................................................9
4. Depreciation by units of production........................................................................................9
References......................................................................................................................................11

CASE STUDY ONE
Part (a)
The purchase price consists of the amount paid by the seller for acquiring the asset. All
the direct cost associated with buying the asset also makes part of the purchase cost. In this case,
Nicolaidis purchased the two machines at a cost $700000 which includes GST. Since the GST is
directly related with the purchasing the asset therefore purchase is recorded on 1 January 2017
by the amount of $ 700000
Part (b)
In this study, it has been given that the Nicolaidis used the straight-line method for the
depreciation. The amount of depreciation will be calculated by applying the straight-line method
will be (purchase cost-residual value) divided by the useful life of the asset (Del Giudice,
Manganelli, and De Paola, 2016). In this case, the cost of acquiring the two machine was $
700000. Therefore the purchase price per machine was $ 350000 (700000/2), and the useful life
of the asset is given in the question is 10 years along with the residual value is $ 50000 for each
machine.
The amount of depreciation per machine= (350000-50000)/10= $ 30000 per machine
By straight line method amount of depreciation remains the same for the entire period of the
asset (Küpper, and Pedell, 2016). Therefore depreciation expense for the year 2022 will be $
30000 per machine, and for the two machines, it will be $ 60000.
Part (c)
Journal Entries in the year 2023
1. For the upwards revaluation
Particulars Debit Credit
Truck A/C Dr
To Revaluation Surplus
$ 160000
$160000

2. Depreciation on the truck after revaluation
Particulars Debit Credit
Depreciation Dr
To Truck
$ 70000
$70000
Working Note
year Depreciation Price at the end of year
2017 30000 320000
2018 30000 290000
2019 30000 260000
2020 30000 230000
2021 30000 200000
2022 30000 170000
2023 30000 140000
2024 30000 110000
2025 30000 80000
2026 30000 50000
From the above table, it has been seen that the value of each truck at the end of 2022 is $
170000, for the two trucks it was $ 340000. The trucks were revalued upward at the beginning of
2023 by $ 80000 each. Total revaluation for both the machine was $ 160000. The revised price
of an asset is $ 340000+$160000 that is 500000; however, the residual value would be $ 80000
and the revised life of the asset 6 years.
Therefore the depreciation (500000-80000)/6= $70000 for both machines
It has been assumed that the residual value given in the question was for both the machines.
3. Transfer of the depreciation in the income statement
Particulars Debit Credit