Methods of Derecognizing Sample Assignment

Methods of derecognizing a non-current asset

Deduhin Ltd acquired two new machines for cash on 1 January 2014. The cost of machine A was $400 000, and of machine B, $600 000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $20 000 for machine A and $50 000 for machine B.

Because of technological advances, Deduhin Ltd decided to replace machine A. It traded in machine A on 31 March 2018 for a new machine, C, which cost $420 000. A $200 000 trade-in was allowed for machine A, and the balance of machine C’s cost was paid in cash. Machine C was expected to have a useful life of 8 years and a residual value of $20 000.

On 2 July 2018, extensive repairs were carried out on machine B for $66 000 cash. Deduhin Ltd expected these repairs to extend machine B’s useful life by 4 years and it revised machine B’s estimated residual value to $19 500. Machine B was eventually sold on 1 April 2020 for $300 000 cash.

Deduhin Ltd uses the straight-line depreciation method, recording depreciation to the nearest whole month. The end of the reporting period is 30 June.

Required

Prepare general journal entries to record the above transactions and depreciation journal entries required at the end of each reporting period up to 30 June 2020.
Prepare the following ledger accounts for the period 1 January 2014 to 1 July 2020:

Machinery
Accumulated Depreciation – Machinery

DEDUHIN LTD

General Journal

2014
Jan 1	Machinery	1 000 000
	Cash at Bank		1 000 000
	Purchase of machines A and B.
June 30	Depreciation Expense – Machinery	46 500
	Accum. Depreciation – Machinery		46 500
	Depreciation of machines A and B.
	Mach A: (400 000 – 20 000)/10 ´ ½ = $19 000
	Mach B: (600 000 – 50 000)/10 ´ ½ = $27 500
2015
June 30	Depreciation Expense – Machinery	93 000
	Accum. Depreciation – Machinery		93 000
	Depreciation of machines A and B.
	Mach A: (400 000 – 20 000)/10 = $38 000
	Mach B: (600 000 – 50 000)/10 = $55 000
2016
June 30	Depreciation Expense – Machinery	93 000
	Accum. Depreciation – Machinery		93 000
	Depreciation of machines A and B.
2017
June 30	Depreciation Expense – Machinery	93 000
	Accum. Depreciation – Machinery		93 000
	Depreciation of machines A and B.
2018
Mar. 31	Depreciation Expense – Machinery	28 500
	Accum. Depreciation – Machinery		28 500
	Depreciation of machine A to date of sale.
	Mach A: $38 000 ´ 9/12 =$28 500
Mar 31	Machinery [C]	420 000
	Cash at Bank		220 000
	Proceeds on Sale of Machine		200 000
	Trade-in machine A for Machine C.
	Carrying Amount of Machine Sold	238 500
	Accumulated Depreciation – Machinery	161 500
	Machinery		400 000
	Write off machine traded in.
	$161 500 = ($38 000 ´ 3) + 19 000 + 28 500
June 30	Depreciation Expense – Machinery	67 500
	Accum. Depreciation – Machinery		67 500
	Depreciation of machines B and C.
	Mach B: $55 000
	Mach C: ($420 000 – 20 000)/8 ´ ¼ = $12 500
July 2	Accumulated Depreciation – Machinery	247 500
	Machinery [B]		247 500
	Write back accumulated depreciation on machine B on overhaul.
	Machinery [B]	66 000
	Cash at Bank		66 000
	Overhaul of machine B.
	New carrying amount of machine B = 600 000 – 247 500 + 66 000 = $418 500
	Remaining useful life is now 9½ years
2019
30 June	Depreciation Expense – Machinery	92 000
	Accum. Depreciation – Machinery		92 000
	Depreciation of machines B and C.
	Mach B: ($418 500 – 19 500) ÷ 9½ = 42 000
	Mach C: ($420 000 – 20 000) /8 = 50 000
2020
April 1	Depreciation Expense – Machinery	31 500
	Accum. Depreciation – Machinery		31 500
	Depreciation of machine B before sale.
	($418 500 – 19 500)÷ 9½ ´ 9/12= 31 500
April 1	Cash at Bank	300 000
	Proceeds on Sale of Machine		300 000
	Sale of machine B.
	Carrying Amount of Machine Sold	345 000
	Accumulated Depreciation – Machinery	73 500
	Machinery		418 500
	Write off machine B.
	$73 500 = 42 000 + 31 500
June 30	Depreciation Expense – Machinery	50 000
	Accum. Depreciation – Machinery		50 000
	Depreciation of machine C.

The following accounts (in T account format) should be balanced at least on a yearly basis but have not been on the grounds of simplicity.

Machinery
1/1/14	Cash at bank	$1 000 000	1/4/18	Carrying amount	400 000
31/3/18	Cash and proceeds on sale	420 000	2/7/18	Accum. depreciation	247 500
2/7/18	Cash at bank	66 000	1/4/20	Carrying amount	418 500
			30/6/20	Balance c/d	420 000
		1 486 000			1 486 000
1/7/20	Balance b/d	420 000

Accumulated Depreciation – Machinery
1/4/18	Carrying amount and machinery.	$161 500	30/6/14	Depreciation	$46 500
2/7/18	Machinery	247 500	30/6/15	Depreciation	93 000
1/4/20	Carrying amount and machinery	73 500	30/6/16	Depreciation	93 000
			30/6/17	Depreciation	93 000
			31/3/18	Depreciation	28 500
			30/6/18	Depreciation	67 500
			30/6/19	Depreciation	92 000
			1/4/20	Depreciation	31 500
30/6/20	Balance c/d	112 500	30/6/20	Depreciation	50 000
		595 000			595 000
			1/7/20	Balance b/d	112 500

Revaluation, depreciation, disposal

On 1 January 2014, Nicolaidis Ltd purchased two identical new machines at a total cost of $700 000 plus GST. It was estimated that the machines would have a useful life of 10 years and a residual value of $50 000 each. Nicolaidis Ltd uses the straight-line method of depreciation for all of its equipment. The company’s end of reporting period is 31 December.

Required

Record the purchase of the trucks on 1 January 2014.
Record the depreciation expense on the trucks for 2019.
Assume that early in 2020 the company revalued the machines upwards by $80 000 each and assessed that the machines would last 6 more years instead of 4 but that the residual value would be $80 000. Record all journal entries for the trucks in 2020.
Make the necessary entries to record the sale of one of the machines on 31 December 2020. The machine was sold for $200 000 plus GST. (Assume that the two machines had the same carrying amount, which equalled their fair values at this date.)
How much depreciation expense would be recorded on the second machine during 2025 if it were still being used and if its residual value were still $50 000? Why?

2014
Jan. 1	Machinery	700 000
	GST Receivable	70 000
	Cash at Bank		770 000
	Purchase of two machines.

2019	Depreciation – Machinery	60 000
31 Dec	Accumulated Depreciation – Machinery		60 000
	Depreciate trucks ([$700 000 – $100 000] ¸ 10)

2020
Jan	Accumulated Depreciation – Machinery	360 000
	Machinery		360 000
	Write back accumulated depreciation on revaluation $60 000 ´ 6
	Machinery	160 000
	Gain on Revaluation – Machinery (OCI)		160 000
	Revalue Machinery.
OR
	Accumulated Depreciation – Machinery	360 000
	Machinery		200 000
	Gain on Revaluation – Machinery (OCI)		160 000
	(i.e. previous two entries combined.)

Dec. 31	Depreciation Expense – Machinery	70 000
	Accumulated Depreciation – Machinery		70 000
	Depreciate trucks. ([$500 000* – $80 000] ¸ 6)
	*$500,000 = $700,000 -$360,000+160,000

Dec. 31	Cash at Bank	220 000
	GST Payable		20 000
	Proceeds from Sale of Machinery		200 000
	Sale of machine.
	Carrying Amount of Machinery Sold	215 000
	Accumulated Depreciation – Machinery	35 000
	Machinery		250 000
	Write off machine sold.

Early 2020 value of one machine = $250k.

Depreciation $35k/year.

31/12/2020 $250K-35k=$215k

31/12/2021 $215k-35k=$180k

31/12/2022 $180k-35k=$145k

31/12/2023 $145k-35k=$110k

31/12/2024 $110k-35k=$75k

31/12/2025 $75K-25K=$50K

Depreciation in year ended 31/12/2025 is $25k to leave a residual of $50k.