Question
On 1 January 2020, Franks Physio purchased a new reformer machine at a cost of $90,000. Installation costs were $10,000. The reformer machine is expected
On 1 January 2020, Franks Physio purchased a new reformer machine at a cost of $90,000. Installation costs were $10,000. The reformer machine is expected to have a useful life of five years and a residual value of $5,000. During its life, the reformer machine is expected to be used for 760,000 hours. During the year ended 31 December 2020, the reformer machine was used for 70,000 hours.
Required:
(a) Assuming a 31 December year end, calculate the depreciation expense for 2020 using the following depreciation methods (show all workings):
- Straight-line;
- Reducing-balance (at a rate of 30% per annum); and
- Units-of-production.
(6 marks)
(b) Assume that after two years use, the reformer machine is sold for $50,000 (cash). Prepare the general journal entry for its sale using the reducing-balance depreciation method. (Explanation not required) (2 marks)
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