On March 10, 2014, Lucas Limited sold equipment that it purchased for $192,000 on August 20, 2007. It was originally estimated that the equipment would have a useful life of 12 years and a residual value of $16,800 at the end of that time, and depreciation has been calculated on that basis. The company uses the straight-line method of depreciation.
Instructions
(a) Calculate the depreciation charge on this equipment for 2007 and for 2014, and the total charge for the period from 2008 to 2013, inclusive, under each of the following six assumptions for partial periods:
l. Depreciation is calculated for the exact period of time during which the asset is owned. (Use 365 days for your base.)
2. Depreciation is calculated for the full year on the January 1 balance in the asset account.
3. Depreciation is calculated for the full year on the December 31 balance in the asset account.
4. Depreciation for a half year is charged on plant assets that are acquired or disposed of during the year.
5. Depreciation is calculated on additions from the beginning of the month following their acquisition and on disposals to the beginning of the month following the disposal.
6. Depreciation is calculated for a full period on all assets in use for over half a year, and no depreciation is charged on assets in use for less than half a year. (Use 365 days for your base.)
(b) Briefly evaluate the above methods in terms of basic accounting theory and how simple the methods are to apply.