Question 1

Sunshine Ltd acquires an item of machinery on 1 July 2011 for $420000. When the asset is acquired, it is considered to have a useful life for the entity of six years. After this time, the machine will have no residual value. It is believed that the pattern of economic benefits would best be reflected by applying the sum-of-digits method of depreciation. However, contrary to expectations, on 30 June 2014 the asset is sold for $150000.

Required:

Calculate depreciation expense and gain or loss on disposal of the machinery and prepare all the journal entries necessary for Sunshine Ltd for the year ended 30 June 2012, 30 June 2013, 30 June 2014.