PROPERTY, PLANT AND EQUIPMENT PART 2 -TASK 3 ANSWERS
1. SPIN CO.
a) Straight -Line Method Journal Entries
Accumulated Carrying
Date Depreciation depreciation amount
Jan. 1, 500,000 Dec. Depreciation expense 112,500
20x1 31,
20x1 Accumulated depreciation 112,500
Dec. 31, 112,500 387,500
20x1 112,500 Dec. Depreciation expense 112,500
31,
Dec. 31, 225,000 275,000 20x2 Accumulated depreciation 112,500
20x2 112,500
Dec. 31, 337,500 162,500
20x3 112,500
Dec. 31, 450,000 50,000
20x4 112,500
450,000
b) Sum of the year’s digit
Depreciable SYD Accumulated Carrying
Date amount rate Depreciation depreciation amount
1/1/x1 500,000
Dec. Depreciation expense 180,000
31,
12/31/x1 450,000 4/10 180,000 180,000 320,000
20x1 Accumulated depreciation 180,000
12/31/x2 450,000 3/10 135,000 315,000 185,000
Dec. Depreciation expense 135,000
31,
12/31/x3 450,000 2/10 90,000 405,000 95,000
20x2 Accumulated depreciation 135,000
12/31/x4 450,000 1/10 45,000 450,000 50,000
450,000
c) Double-declining balance method
Date Depreciation Accumulated Carrying amount
depreciation Dec. Depreciation expense 250,000
31,
Jan. 1, 20x1 500,000 20x1 Accumulated depreciation 250,000
Dec. 31, 20x1 250,000 250,000 250,000 Dec. Depreciation expense 125,000
31,
Dec. 31, 20x2 125,000 375,000 125,000 20x2 Accumulated depreciation 125,000
Dec. 31, 20x3 62,500 437,500 62,500
Dec. 31, 20x4 12,500 450,000 50,000
450,000
2. a) Based on Input
Dec. 31, 20x1 Depreciation expense (3,600 x 37.5) 135,000
Accumulated depreciation 135,000
Dec. 31, 20x2 Depreciation expense (3,000 x 37.5) 112,500
Accumulated depreciation 112,500
b) Based on output
Dec. 31, 20x1 Depreciation expense (120K x 1.25) 150,000
Accumulated depreciation 150,000
Dec. 31, 20x2 Depreciation expense (100K x 1.25) 125,000
Accumulated depreciation 125,000
3. Glass Finish Co. P 90,000 . The option for renewal is ignored because of uncertainty of renewal.
4. Compress Co.
Dec. 31, 20x8 Depreciation expense 611,429
Accumulated depreciation 611,429
5. Dawn Co.
a. Cost of replaced part is determinable.
Jan. 1, 20x7 Accumulated depreciation (2.5M x 6/10) 1,500,000
Loss on replacement (squeeze) 1,000,000
Equipment (old part) 2,500,000
to derecognize the old part
Jan. 1, 20x7 Equipment (new part) 3,000,000
Cash 3,000,000
to recognize the new replacement part
b. Cost of replaced part is indeterminable.
Jan. 1, 20x7 Accumulated depreciation (3M x 6/10) 1,800,000
Loss on replacement (squeeze) 1,200,000
Equipment (old part) 3,000,000
to derecognize the old part
Jan. 1, 20x7 Equipment (new part) 3,000,000
Cash 3,000,000
to recognize the new replacement part
6. Corona Co.
a. Revaluation Surplus , net of Tax
Fair value 25,200,000
Less: Carrying amount (30M – 9M) (21,000,000)
Revaluation surplus - gross of tax 4,200,000
Less: Deferred tax (4.2M x 30%) (1,260,000)
Revaluation surplus - net of tax 2,940,000
b. Journal Entries: Proportional vs Elimination Method
D Building (36M – 30M) 6,000,0 Date Accumulated depreciation 9,000,000
a
00 (elimination)
t Accum. depreciation (10.8M – 1,800,000 1,260,000
e 9M) Deferred tax liability
1,260,000 2,940,000
Deferred tax liability Revaluation surplus
2,940,000 4,800,000
Revaluation surplus Building (balancing figure)
c. Revised annual depreciation: 3 Million
7. Germs Co.
a)
Replacement cost 32,000,000
Less: Depreciation (32M x 5/25(a)) (6,400,000)
Fair value (Depreciated replacement cost) 25,600,000
Carrying amount (24M – 7.68M) (16,320,000)
Revaluation surplus – gross of tax 9,280,000
Less: Deferred tax (9.28M x 30%) (2,784,000)
Revaluation surplus – net of tax 6,496,000
b)
Date Date Accumulated depreciation 7,680,000
Building (see table above) 8,000,000
(elimination)
Accumulated depreciation 1,280,000 1,600,000
Building (balancing figure)
Revaluation surplus 6,496,000 6,496,000
Revaluation surplus
Deferred tax liability 2,784,000
Deferred tax liability 2,784,000
c. Revised annual depreciation – 1, 280,000.
8. Phartz Co.
Annual transfer to retained earnings for Building 400,000
9. Velch Co.
Dec. 31, 20x4 Impairment loss 1,200,000
Land 1,200,000
Dec. 31, 20x7 Land 3,200,000
Impairment gain 1,200,000
Revaluation surplus 2,000,000
Dec. 31, 20x9 Revaluation surplus 2,000,000
Impairment loss 100,000
Land 2,100,000
10. Epol Co.
Gain on sale = 320,000
