Armon Ltd purchased machinery for its manufacturing process on 1 April 2020. The machinery cost $137,500. Armon Ltd estimates that the machinery has a useful life of 6 years, with a residual value of $17,500.

It is also estimated that the machinery will produce 50,000 units over its useful life. The reporting period ends on 31 December. Ignore GST.

Required:

a. Prepare the journal entry to record Depreciation Expense for year ended 31/12/2020 using straight line depreciation method. (1 Mark)

b. Assuming that in the year ending 31/12/2020, 2,500 units were produced. What is the carrying amount of the machinery on 31/12/2020, if the company uses the units-of-production depreciation method. (1 Mark)