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Equipment Company started business on 1st January 2004. The company immediately acquired production equipment for $9,000,000. It was estimated that this equipment would have a useful life of 15 years and a salvage value of $0. On 1st January 2008 Equipment Company decided to re-value this equipment to fair value $8,000,000. On 1st January 2011 20% of the equipment was sold for $1,400,000. On 1 st January 2013 the remaining equipment was re-valued at $5,000,000. Equipment’s year end is 31st December. The estimated total useful life and salvage value made earlier (15 year total useful life and $0 salvage value) remained constant.
Prepare journal entry from 1st January 2008 to 1st January 2013
1 Jan 2008
Dr. Accumulated Depreciation ($9,000,000/15 x 4 years) 2,400,000
Cr. PPE-equipment 2,400,000Dr.PPE-equipment (8,000,000-6,600,000) 1,400,000
Cr. Revaluation Surplus 1,400,000Depreciation on 1 Jan 2011= 8,000,000 / 11 years= annual 727,273
1 Jan 2011
Dr. Accumulated Dep. 1,745,454
Dr.Bank 1,400,000
Cr. Gain on Disposal 1,981,818
Cr. Cost of equipment (5818182 x 20%) 1,163,6361 Jan 2013
Dr. Accumulated Dep. (581,818 x 2years) 1,163,636
Cr. PPE-equipment 1,163,636
Dr. PPE-equipment (5,000,000 – 3,490,909) 1,509,091
Cr. Revaluation Surplus 1,509,091Could you help me to check my answer, because my book does not provide any answer for checking? Thank you
“Depreciation on 1 Jan 2011= 8,000,000 / 11 years= annual 727,273
1 Jan 2011
Dr. Accumulated Dep. 1,745,454”Why have you multiplied annual depreciation of $727,274 by 2.4 years?
It should be three years from 1 January 2008 to 31 December, 2010
“Dr.Bank 1,400,000
Cr. Gain on Disposal 1,981,818”When you sell something for $1,400,000, how is it possible to record a gain on disposal of $1,981,818
Otherwise, most of your figures appear to coincide with mine.
However, this is a most unlikely situation … a text bbok that gives you difficult questions and then fails to give you answers
In addition, this example is remarkably similar to one that I have seen before – one set by a lecturer as homework
I do sincerely hope that you’re not asking me to check your homework before you hand it in for assessment!
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