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Depreciation exercises Page 1 Instructions: After having read and understood the learning resources of this module works the following exercises Exercise 1: Measurement of cost of plant assets. the costs have been included for the acquisition of land are presented in the discussion of this module. First is the purchase price, which evidently includes the cost of land. The reasons to include other costs are not so obvious. For example, the demolition of a building looks rather as an expense. Is required: They discussed explain why costs are included as part of the cost of land. After the soil is ready for use, can such costs are capitalized or expensed? Exercise 2: Calculation of depreciation the first year. At the beginning of the year, Logan Services buy a plane used $65,000,000. Logan expects the plane to remain useful for 4 years or 6,500,000 million miles and have a residual value of $5, 000,000. The company expects the plane to fly 1,300,000 million miles the first year. Is required: 1. Calculate the depreciation in the first year for Logan on the plane using the following methods. Straight line Production units double-declining balance Data item Cost of plane Less: estimated residual value Depreciable cost Life Expectancy Years Units Straight line Depreciation straight line = ( Date Cost active $ Rode $65,000,000 5,000,000 $60,000,000 4 6,500,000 million miles Depreciation for the year depreciation rate $ depreciable cost Depreciatio n expense Accumulated depreciation $ $ $ Value in books $ Production units Date Page 2 Cost active Depreciation for the year Depreciation Number of Depreciatio rate per unit units n expense $ $ $ $ Accumulate d depreciation $ Value in books $ double-declining balance Date Cost active Depreciation for the year SDD rate Value Depreciatio n expense Accumulate d depreciation Value in books 2. Show the book value of the aircraft at the end of the first year with the straight-line method. Date Debit Credit Depreciation expenses (G +) Accumulated depreciation (DA +) Logan Services Assets Airplane Less Residual Value Less accumulated depreciation Total value Plane Exercise 3: Calculation of the depreciation of the second year. At the beginning of 2016, Texas Aero buy a plane used in $65, 000,000. Texas expects the plane to remain useful for 5 years or 6,000,000 million miles and have a residual value of $5, 000,000. The company expects the plane to fly 1,400,000 million miles the first year and 1,300,000 million miles the second year. Is required: Data item Cost of plane Less: estimated residual value Depreciable cost Life Expectancy Years Units Rode $65,000,000 5,000,000 $54,000,000 5 6,000,000 million miles 1. Calculate the depreciation of the second year to Texas on the plane using the following methods. Straight line Date Cost active Depreciation for the year depreciation depreciabl Depreciatio rate e cost n expense Accumulate d depreciation Value in books Accumulate d depreciation Value in books Accumulate d depreciation Value in books Page 3 Year 1 year 2 Production units Date Cost active Year 1 year 2 $65,000,000 Depreciation for the year Depreciatio Number of Depreciatio n rate per units n expense unit Double-decreasing balance Date Cost active Year 1 year 2 $65,000,000 Depreciation for the year SDD rate Value Depreciatio n expense 2. Calculate the balance (balance) in the cumulative account end of year depreciation using depreciation method straight. Exercise 4: partial year depreciation and sale of an asset. Page 4 On January 2, 2016, Ditto Consignments Clothing buy goods for exhibition room for $16,000 in cash, hoping that these goods remain in service for five (5) years. Ditto Co. has depreciated the goods based on double-declining balance with zero residual value. On August 31, 2016, Ditto appliances sold in $7,600 in cash. Date Cost active Year $16,000 Depreciation for the year SDD rate Value Depreciatio n expense Accumulated depreciation Value in books Year Is required: Register (Journalize) depreciation for 2016. Date Aug 31 Debit Credit Debit Credit Depreciation expenses (G +) Accumulated depreciation (DA +) Register (Journalize) the sale of goods to August 31, 2016. Date Aug 31 Cash (A +) Accumulated depreciation (DA) Profit on sale of equipment (A +) Team A-) Answer: Cost Residual value Life Depreciation = = = 48000 9000 15 (Cost - Residual value) / Life (48000-9000)/15 2600 Ex10-10 Cost Residual value Life Depreciation = = = 180000 18000 36000 (Cost - Residual value) / Life (180000-18000)/36000 4.5 Ex 10-19 Cost Mined and sold Total 42000000 1850000 20000000 Depletion = = (Cost - Residual value) / Life (42000000/20000000) 3885000 Account Depletion expense Mineral ore Debit Credit 3885000 3885000 Ex 10-20 Cost Life Patent lawsuit 882000 9 45000 Value in 2013 Amortization for 3 years = Book value Add: Cost Remaining life 882000 294000 588000 45000 6 Amortization expense for 2016 = = (588000+45000)/6 105500 Pr 10-2A Cost Life Operating hours Residual value Usage Year 90000 3 20000 6000 8900 7100 4000 Straight lineUnits of ou 2014 28000 37380 2015 28000 29820 2016 28000 16800 idual value) / Life idual value) / Life 000)/36000 idual value) / Life 20000000) Double declining 60003 19999 6666 Solution: Computation of the following Exercise 1 1) Land: it Is a fixed Asset but not depreciable asset. As per Discussion any cost incurred are direct cost associated with the pu and those cost are normally form the cost of land 2) The puchases of land is completed and the land is available or ready to use, after that what ever cost which are incurred fo ground maintenance expenses and ordinary expenses etc treated as expenses only. Exercise 2 Given information Cost of Plane Salvage value Depreciable Cost Life of Asset Production in Miles First year Miles runs Straight line method of Depreciation Depreciation Expenses Depreciation Expenses $ $ $ Asset Value - Salvage Value Life of Asset 65000000-5000000 4 Depreciation Expenses Depreciation Expenses 60000000 4 $ Depreciation Rate 15,000,000 25.00% Date Dec 31 First Year 65,000,000 5,000,000 60,000,000 65000000-5000000 4 Years 6500000 1300000 Cost Active $ 65,000,000 Production Units Production Unit per mile Production Unit per mile Dep Unit per mile 65000000-5000000 6500000 60000000 6500000 9.2307692308 Depreciation 25.00% Depreciable cost Depreciation Expenses $ 60,000,000 $15,000,000 Dep Expenses production $ 12,000,000 Production Units Date Dec 31 First Year Cost Active $ 65,000,000 Depreciation Rate per unit No of units Depreciation Expenses 9.23 1,300,000 $12,000,000 SDD Rate Value Depreciation Expenses 50% 30,000,000 $30,000,000 Double Declining Balance Date Dec 31 First Year Jounral Entry Deprciation Expenses Accumulated Depreciation Cost Active $ 65,000,000 $ 15,000,000 $ 15,000,000 Logan Services Assets Airplane Less: Residual Value Less: Accumulated Depreciation Total Value Plane Exercise 3 Given information Cost of Plane Salvage value Depreciable Cost Life of Asset Production in Miles First year Miles runs Second year Miles runs Straight line method of Depreciation Depreciation Expenses Depreciation Expenses $ $ $ $ $ $ $ Depreciation Rate 65,000,000 5,000,000 60,000,000 65000000-5000000 5 Years 6000000 1400000 1300000 Asset Value - Salvage Value Life of Asset 65000000-5000000 5 Depreciation Expenses Depreciation Expenses 65,000,000 5,000,000 15,000,000 45,000,000 60000000 5 $ 12,000,000 per year 20.00% Date Dec 31 First Year Dec 31 Second Year Cost Active $ $ Depreciation 65,000,000 53,000,000 20.00% 20.00% Depreciable cost Depreciation Expenses $ 60,000,000 $12,000,000 $ 60,000,000 $12,000,000 Production Units Production Unit per mile 65000000-5000000 6000000 Production Unit per mile 60000000 6000000 Dep Unit per mile Dep Expenses production 1st Year Dep Expenses production 2nd Year 10 $ $ 14,000,000 13,000,000 Production Units Date Dec 31 First Year Dec 31 Second Year Cost Active $ $ 65,000,000 51,000,000 Depreciation Rate per unit No of units Depreciation Expenses 10.00 10.00 1,400,000 1,300,000 $14,000,000 $13,000,000 SDD Rate Value Depreciation Expenses 40% 40% 60,000,000 36,000,000 $24,000,000 $14,400,000 Double Declining Balance Date Dec 31 First Year Dec 31 Second Year Cost Active $ $ 65,000,000 41,000,000 2) Cummulative Depreciation Expenses end of 2nd year Exercise 4 Given information Cost of Asset Salvage value Depreciable Cost Life of Asset Straight line method of Depreciation Depreciation Expenses Depreciation Expenses $ $ $ $ 24,000,000 16,000 16,000 5 Years Asset Value - Salvage Value Life of Asset 16000 5 Depreciation Expenses Depreciation Expenses 16000 5 $ Depreciation Rate 3,200 per year 20.00% Double Declining Balance Date Aug 31 First Year Dec 31 Second Year Jounral Entry Deprciation Expenses Accumulated Depreciation Cash Accumulated Depreciation Cost of Asset Profit on Sale of Equipment Cost Active $ $ 16,000 9,600 $ 2,560 $ $ SDD Rate Value 40% 40% 16,000 9,600 $ 2,560 $ $ 16,000 560 7,600 8,960 Depreciation Expenses $ $ 6,400 2,560 ct cost associated with the purchase of land er cost which are incurred for land-related those are property taxes, Accumulated Value in books Depreciation $ 15,000,000 $ 50,000,000 Accumulated Value in books Depreciation $ 12,000,000 $ 53,000,000 Accumulated Value in books Depreciation $ 30,000,000 $ 35,000,000 Accumulated Value in books Depreciation $ 12,000,000 $ 53,000,000 $ 24,000,000 $ 41,000,000 Accumulated Value in books Depreciation $ 14,000,000 $ 51,000,000 $ 13,000,000 $ 38,000,000 Accumulated Value in books Depreciation $ 24,000,000 $ 41,000,000 $ 38,400,000 $ 26,600,000 Accumulated Value in books Depreciation $ $ 6,400 $ 8,960 $ 9,600 7,040