ACCY 200 SUGGESTED SOLUTION QUESTION 9.

18

Question 9.18 Acquisition, disposal and depreciation of non-current

assets

Bruce is the owner of Willis Meat Supplies. Willis Meat Supplies adjusted trial balance
at 31 December 2016 (end of the reporting period) included the following balances:

Processing Plant (at cost; purchased 10 April 2013) $148 650

Accumulated Depreciation Processing Plant 109 135

Trucks Control (at cost) 291 400

Accumulated Depreciation Control Trucks 174 200

The Trucks Control and Accumulated Depreciation Control Trucks accounts are
supported by subsidiary ledgers. Details of trucks owned at 31 December 2016 are as
follows:

Truck Purchase Cost Estimated Estimated

Date Useful Life Residual Value

1 25 August 2013 $61 000 4 years $3 400

2 05 March 2014 $70 600 4 years $3 400

3 02 August 2014 $75 600 4 years $3 600

4 23 October 2014 $84 200 5 years $3 200

Additional information
Bruce uses the general journal for all entries, calculates depreciation to the nearest
month, balances his accounts 6-monthly, and records amounts to the nearest dollar.
Bruce uses straight-line depreciation for all depreciable assets except the processing
plant, which is depreciated at 30% p.a. on the diminishing balance.
The following transactions and events occurred during 2017:

January 27 Traded-in Truck 1 for a new truck (Truck 1A) which cost $84 100. A trade-in
allowance of $10 200 was received and the balance was paid in cash.
Registration and painting costs of $1500 were also paid in cash. Bruce estimated
Truck 1As useful life and residual value at 5 years and $4600.
June 02 Modernised the processing plant at a cash cost of $61 574. Although the
modernisation significantly expanded the plants operating capability and
efficiency, Bruce decided that no revision to the depreciation rate was
warranted.

July 24 Sold Truck 3 for $25 000 in cash.

September 28 Exchanged Truck 2 (fair value at exchange date: $10 640) for computer
equipment. The computer equipments fair value was $10 550 at exchange date.
The computer equipment originally cost $26 600 and had been depreciated in
the previous owners accounts by $15 850 to date of exchange. Bruce estimated
the computer equipments useful life and residual value at 4 years and $320.

December 31 Recorded depreciation.

Required
A. Prepare journal entries to record the above transactions and events. (Narrations are
not required.)
B. Prepare the Processing Plant and Accumulated Depreciation Control Trucks
general ledger accounts for the period 1 January 2017 to 31 December 2017:

1. JOURNAL ENTRIES

Depreciation of trucks:

Truck 1: [61 000 3 400]/4y = 14 400 p.a. or 1 200/m

Truck 2: [70 600 3 400]/4y = 16 800 p.a. or 1 400/m
Truck 3: [75 600 3 600]/4y = 18 000 p.a. or 1 500/m
Truck 4: [84 200 3 200]/5y = 16 200 p.a. or 1 350/m

27/01/17 Depreciation trucks (T1) Dr 1 200

Accumulated depreciation trucks (T1) Cr 1 200

(Depreciation up to point of trade-in:

1 200 x 1 month)

Accumulated depreciation trucks (T1)

(1 200 x 41 months) Dr 49 200

Carrying amount of truck sold trucks (T1)

 (61 000 49 200) Dr 11 800

Trucks (T1) Cr 61 000

(De-recognition of Truck T1 on sale)

Trucks (T1A) (84 100 + 1 500) Dr 85 600

Proceeds on sale Trucks (T1) Cr 10 200

Cash Cr 75 400

(Purchase of truck T1A)

Depreciation of T1A = [85 600 4 600]/60 = 1 350 per month

02/06/17 Depreciation processing plant Dr 4 939

Accumulated depreciation processing plant Cr 4 939

(Depreciation up to point of modernisation:

([148 650 109 135] x 30% x 5/12)

Accumulated depreciation processing plant Dr 114 074

Processing Plant Cr 114 074

(writedown to carrying amount prior to modernisation:

[109 135 + 4 939])

Processing plant Dr 61 574

Cash Cr 61 574

(Cost of modernisation of processing plant)

Carrying amount of processing plant = 148 650 (109 135 + 4 939) + 61 574

= 96 150
24/07/17 Depreciation trucks (T3) Dr 10 500

Accumulated depreciation trucks Cr 10 500

(Depreciation of T3 up to sale: 1 500 x 7 months)

Accumulated depreciation trucks (T3)

(1 500 x 36 months) Dr 54 000

Carrying amount of truck sold trucks (T3)

(75 600 54 000) Dr 21 600

Trucks (T3) Cr 75 600

De-recognition of truck (T3) sold)

Cash Dr 25 000

Proceeds on sale of trucks (T3) Cr 25 000

(Proceeds on sale of truck T3)

28/09/17 Depreciation trucks (T2) Dr 12 600

Accumulated depreciation trucks (T2) Cr 12 600

(Depreciation up to point of exchange: 1 400 x 9m)

Accumulated depreciation trucks (T2)

(1 400 x 43m) Dr 60 200

Carrying amount of truck sold (T2)

(70 600 60 200) Dr 10 400

Trucks (T2) Cr 70,600

(De-recognition of truck sold - T2)

28/09/17 Computer equipment Dr 10 640

Proceeds on sale of trucks (T2) Cr 10 640

(Acquisition of computer equipment at cost)

Computer equipment depreciation = [10,640 320]/48 = 215 per month)

31/12/17 Depreciation trucks

(T1A = 1 350 x 11m) + (T4 = 1 350 x 12m) Dr 31 050

Depreciation processing plant

(96 150 x 30% x 7/12) Dr 16 826

Depreciation computer equipment (215 x 3m) Dr 645

Accumulated depreciation trucks Cr 31,050

Accumulated depreciation processing plant Cr 16,826

Accumulated depreciation computer

equipment Cr 645

(Depreciation of non-current assets at year end)

2. LEDGER ACCOUNTS

PROCESSING PLANT

31/12/16 Balance b/d 148 650 02/06/17 Acc. depreciation 114 074

02/06/17 Cash 61 574 30/06/17 Balance c/d 96 150

210 224 210 224

30/06/17 Balance b/d 96 150

______ 31/12/17 Balance c/d 96 150

96 150 96 150
31/12/17 Balance b/d 96 150

ACCUMULATED DEPRECIATION CONTROL - TRUCKS

22/01/17 Trucks (T1) 49 200 31/12/016 Balance b/d 174 200

30/06/17 Balance c/d 126 200 22/01/17 Depreciation (T1) 1 200

175 400 175 400

24/07/17 Trucks (T3) 54 000 30/06/17 Balance b/d 126 200

21/09/17 Trucks (T2) 60 200 24/07/17 Depreciation (T3) 10 500

31/12/17 Balance c/d 66 150 21/09/17 Depreciation (T2) 12 600

______ 31/12/17 Depreciation 31 050

180 350 180 350

31/12/17 Balance b/d 66 150