Comparison of depreciation methods Part A Technicolour Ltd owns a nightclub in the centre of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 April 2022.

The sound system cost $27 000 to purchase and $3500 to install. The lighting system cost $44 000.

The sound system has a useful life of five years and the lighting system, four years. Both are depreciated on a straight-line basis, assuming no residual value.

1 What is the cost and the written-down value for the assets discussed as at 31 December 2022?

2 Would Technicolour’s profit be higher or lower for the year ended 31 December 2022 if it had adopted the reducing balance method of depreciation (use 150 per cent of straight-line rate)? Use the same data in the question to calculate your answer.

Part B This question continues the scenario outlined in Part A.

On 1 May 2022, it was found that the lighting system was no longer flashing ultraviolet rays in time with the music (as it should). It cost $700 to have this fixed. On 1 October 2022, $5000 was spent to give the sound system a heavier bass beat.

What is the appropriate accounting treatment for the events that occurred on 1 May 2022 and 1 October 2022?