Question B3 (36 marks) Part I (30 marks) On 25 March 2020, Miracle Company bought a...

 

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Question B3 (36 marks) Part I (30 marks) On 25 March 2020, Miracle Company bought a machine at $1,350,000 with an estimated useful life of 15 years and no residual value. The machine is expected to operate 270,000 hours. The company adjusts its account annually with the year-end date on 31 December. Required: (a) Compute (show workings) depreciation expenses for the machine in 2020 and 2021 by: (i) Straight-line (using half year convention); (6 marks) (ii) 150%-declining-balance (calculate to the nearest whole month); and (6 marks) (iii) Units-of-output method (hours of operation: 12,000 in 2020; 18,000 in 2021) (6 marks) (b) Assume Miracle Company adopts the straight-line method in (a)(i) above. On 5 April 2022 the machine was disposed for $1,150,000 cash. (i) Journalize depreciation of the machine for 2022 before the disposal. Journalize disposal of the machine on 5 April 2022. Part II (6 marks) MCC company uses straight-line depreciation (round to the nearest whole month) and adjusts its accounts annually on 31 December. On 1 January 2016, MCC purchased a van for $450,000 which has an estimated useful life of 9 years and no residual value. On 1 January 2021, the company incurred the following expenditure on the van: (i) $1,500 for annual maintenance and servicing (4 marks) (8 marks) (ii) $60,000 to upgrade the van with a new and more powerful engine $1,000 to paint the van after 5 years of use. (iii) On 1 January 2021, the useful life of the van was revised to 13 years with a residual value of $15,000. Required: (a) What is the book value of the van as at 31 December 2020? (b) Journalize annual depreciation of the van on 31 December 2021. Show workings. (2 marks) (4 marks) Question B3 (36 marks) Part I (30 marks) On 25 March 2020, Miracle Company bought a machine at $1,350,000 with an estimated useful life of 15 years and no residual value. The machine is expected to operate 270,000 hours. The company adjusts its account annually with the year-end date on 31 December. Required: (a) Compute (show workings) depreciation expenses for the machine in 2020 and 2021 by: (i) Straight-line (using half year convention); (6 marks) (ii) 150%-declining-balance (calculate to the nearest whole month); and (6 marks) (iii) Units-of-output method (hours of operation: 12,000 in 2020; 18,000 in 2021) (6 marks) (b) Assume Miracle Company adopts the straight-line method in (a)(i) above. On 5 April 2022 the machine was disposed for $1,150,000 cash. (i) Journalize depreciation of the machine for 2022 before the disposal. Journalize disposal of the machine on 5 April 2022. Part II (6 marks) MCC company uses straight-line depreciation (round to the nearest whole month) and adjusts its accounts annually on 31 December. On 1 January 2016, MCC purchased a van for $450,000 which has an estimated useful life of 9 years and no residual value. On 1 January 2021, the company incurred the following expenditure on the van: (i) $1,500 for annual maintenance and servicing (4 marks) (8 marks) (ii) $60,000 to upgrade the van with a new and more powerful engine $1,000 to paint the van after 5 years of use. (iii) On 1 January 2021, the useful life of the van was revised to 13 years with a residual value of $15,000. Required: (a) What is the book value of the van as at 31 December 2020? (b) Journalize annual depreciation of the van on 31 December 2021. Show workings. (2 marks) (4 marks)

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a Date of Purchase 25th March 2020 Cost of acquisition 1350000 Residual value 0 Estimated useful life 15 years i Calculation of depreciation under Straight Line using Half year convention for year 202... View the full answer