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Star Ltd purchased new equipment for $60 000 net of GST on 2 July 2015. The equipment

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Star Ltd purchased new equipment for $60 000 net of GST on 2 July 2015. The equipment was expected to have a $10 000 residual value at the end of its 8-year useful life. Straight-line depreciation has been recorded. While reviewing the accounts in anticipation of adjusting them for the annual financial reports for the year ended 30 June 2018, Star Ltd decided that the useful life of the equipment should be extended by 2 years, and that the residual value should be revised to $6000.

Required

A.    Give the general journal entry to record depreciation expense on the equipment for the year ended 30 June 2018.

B.    Calculate the carrying amount of the equipment at 30 June 2018.

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A Depreciation Expense 5 188 Accumulated Depreciation Equi...View the full answer


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In accounting terms, depreciation is defined as the reduction of the recorded cost of a fixed asset in a systematic manner until the value of the asset becomes zero or negligible. An example of fixed assets are buildings, furniture, office equipment, machinery, etc. The land is the only exception that cannot be depreciated as the value of land appreciates with time. Depreciation allows a portion of the cost of a fixed asset to be the revenue generated by the fixed asset. This is mandatory under the matching principle as revenues are recorded with their associated expenses in the accounting period when the asset is in use. This helps in getting a complete picture of the revenue

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