TUTORIAL 8 Questions
Question 1
Jack’s, a popular pizza hang-out, has a thriving delivery business. Jack’s has a fleet of three
delivery automobiles. Prior to making the entry for this year's depreciation expense, the
subsidiary ledger for the fleet is as follows:
Accumulated
Estimated Depr.—Beg. Miles
Operated
Car Cost Salvage Value Life in Miles of the Year During Year
1 $21,000 $3,000 75,000 $2,520 20,000
2 18,000 2,400 60,000 2,340 22,000
3 23,500 2,500 70,000 2,000 19,000
Instructions
(a) Determine the depreciation rates per mile for each car.
(b) Determine the depreciation expense for each car for the current year.
(c) Make one compound journal entry to record the annual depreciation expense for the
fleet.
1
Question 2
South Airlines purchased a 747 aircraft on January 1, 2015, at a cost of $35,000,000. The
estimated useful life of the aircraft is 20 years, with an estimated salvage value of
$5,000,000. On January 1, 2018 the airline revises the total estimated useful life to 15 years
with a revised salvage value of $3,500,000.
Instructions
(a) Compute the depreciation and book value at December 31, 2017 using the straight-
line method and the double-declining-balance method.
Depreciable Depreciation Annual Accumulated Book
Year Cost × Rate = Depreciation Depreciation
value
2015 $30,000,000 5% $1,500,000 $1,500,000 $33,500,000
2016 30,000,000 5% 1,500,000 3,000,000 32,000,000
2017 30,000,000 5% 1,500,000
4,500,000 30,500,000
(b) Assuming the straight-line method is used, compute the depreciation expense for the
year ended December 31, 2018.
2
Question 3
Hayden Company purchased a machine on January 1, 2017, at a cost of $90,000. It is
expected to have an estimated salvage value of $5,000 at the end of its 5-year life. The
company capitalized the machine and depreciated it in 2017 using the double-declining-
balance method of depreciation. The company has a policy of using the straight-line method
to depreciate equipment but the company accountant neglected to follow company policy
when he used the double-declining-balance method. Net income for the year ended December
31, 2017 was $55,000 as the result of depreciating the machine incorrectly.
Instructions
Using the method of depreciation which the company normally follows, prepare the
correcting entry and determine the corrected net income. (Show computations.)
Question 4
Vicky’s Machinery account and provision for depreciation on Machinery account for the
year ended 30 April 2018 were as follows:
Machinery account
RM’000 RM’000
2017 2017
May 1 Balance b/d 6,000 July 5 Disposal 900
2018
June 3 Bank 1,440 Apr 30 Balance c/d 6,540
7,440 7,440
2018
May 1 Balance b/d 6,540
Provision for depreciation on Machinery account
RM’000 RM’000
2017 2017
July 5 Disposal 690 May 1 Balance b/d 1,890
3
2018 2018
Apr 30 Balance c/d 2,181 Apr 30 P&L 15% 981
2,871 2,871
2018
May 1 Balance b/d 2,181
During the year ended 30 April 2019 the following transactions took place:
On 1 June 2018 new Machinery was purchased for RM1,080,000.
On 3 December 2018, another new Machinery was purchased for RM160,000.
On 3 September 2018, Machinery which had been purchased on 31 March
2017 for RM600,000 was sold for RM264,000.
Other information:
1. A full year’s depreciation is provided for on Machinery in use at the end of the
financial year but none (no depreciation) is provided for in the year of disposal
of a Machinery.
2. The rate of depreciation applied is 15% on cost for the year ended 30 April
2019.
REQUIRED:
Prepare the following accounts for the year ended 30 April 2019:
(a) Machinery
(b) Provision for depreciation on Machinery
