Powerhouse purchased some safety equipment to support its miners working at the coalface in an underground mine on 2 January 2018. The equipment cost $35,000 to purchase from Mines Safety Australia and was transported to the mine by DRT transport at a cost of $2,300 (includes insurance costs). Powerhouse engaged a contractor to install the equipment underground and their invoice totaled $1,700.

Powerhouse estimate that the equipment will remain in service for 4 years and perform 11,000 hours of service. At the end of its useful life Powerhouse estimates that the equipment will have a residual value of $6,000. The equipment was used for 1,100 hours in the first year, 3,300 hours in the second year, 4,400 in the third year and 2,200 hours in the fourth year. Assume a 31 December, end of financial year.

Required –

1. Make a schedule of depreciation expense per year for the equipment under the three depreciation methods. After two years under reducing balance depreciation using 2 times the straight-line rate, Powerhouse switched to the straight-line method. Show your calculations. Note: Three depreciation schedules must be prepared.

2. What method tracks the wear and tear on the equipment most closely?

3. A great opportunity has arisen for Powerhouse to update this existing safety equipment with the latest state of the art model. Powerhouse sells the equipment to Eraring power services after using it for almost 3 years on the 30th September, 2020 for $19,000 cash. Prepare the general journal entries to account for the initial purchase of the equipment, depreciation over the time that it is owned (assume that we have depreciated our asset based on straight line method) by Powerhouse and subsequent disposal of this equipment.

Answer rating: 100% (QA)

Equipments total cost Equipment cost 35000 Transportation and insurance cost 2300 Installation cost 1700 Total cost of Equipment 39000 1 There are three methods of depreciation and they are as furnish... View the full answer