Adams mowing Limited purchased a group of new lawnmowers for $20,000 at 1 July 2020 As the accountant of the business, you have estimated that the mowers are to last five years and to have $500 residual value at that point The entitys business plan projects cutting 5,000 lawns over the five years, with per year projections of 500, 1,000, 1,200, 1,800 and 500 lawns over the five years Required Calculate the Accumulated Depreciation balance at the end of the second year using each of the following depreciation bases Show your working (6 marks) straight line diminishing balance (52 per cent rate) units of production You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity Provide appropriate response to the owners question and request (3 marks) If the 52 per cent reducing balance method is used, accumulated depreciation will be $19,500 at the end of the fifth year Suppose that, on the first day of the sixth year, all the lawnmowers are sold as junk for $100 cash in total Ignoring income taxes, calculate the loss on sale that would be recorded that day (1 mark)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 10, 2024

Adams mowing Limited purchased a group of new lawnmowers for $20,000 at 1 July 2020. As the accountant of the business, you have estimated that

Adams mowing Limited purchased a group of new lawnmowers for $20,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five years and to have $500 residual value at that point. The entitys business plan projects cutting 5,000 lawns over the five years, with per-year projections of 500, 1,000, 1,200, 1,800 and 500 lawns over the five years.

Required:

Calculate the Accumulated Depreciation balance at the end of the second year using each of the following depreciation bases. Show your working. (6 marks)
- straight-line
- diminishing balance (52 per cent rate)
- units-of-production.
You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owners question and request. (3 marks)
If the 52 per cent reducing balance method is used, accumulated depreciation will be $19,500 at the end of the fifth year. Suppose that, on the first day of the sixth year, all the lawnmowers are sold as junk for $100 cash in total. Ignoring income taxes, calculate the loss on sale that would be recorded that day. (1 mark)