Question
Michael Browne owns and operates a small engineering business. On the 1 st October 2019 he acquired a new machine that cost $60,000. The manufacturer
Michael Browne owns and operates a small engineering business. On the 1st October 2019 he acquired a new machine that cost $60,000. The manufacturer of the machine installed it at Michaels business premises for $3,000. He anticipated that the machine would have a 5 year useful life and would be scrapped at the end of its useful life. Michael depreciated the machine using the diminishing balance method of depreciation at a rate of 20%.
Narrations are not required for the journal entries.
Required:
a) Prepare the depreciation journal entries for the year ending 31 December 2019 and 2020 (4 marks)
b) Calculate the carrying amount of the machine as at 31 December 2021 (1.5 marks)
c) On 31 March 2021, Michael sold one of his delivery trucks for $20,000. He had purchased the truck on 1 July 2019 for $35,000 and depreciated it using straight-line depreciation. The truck had a useful life of 8 years and a residual value of $3,000. Prepare the journal entry to record the disposal of the delivery truck on 31 March 2021. (3.5 marks)
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