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Accounting2 Task 7

- The document provides information about depreciation methods for an asset purchased for €2,045,000 with a 10 year useful life and €100,000 residual value. - It describes the straight line, units of production, and double declining balance depreciation methods and provides the calculations and journal entries for each. - It also addresses adjusting estimates, impairment losses, and compares the depreciation expense over the asset's life for each method.

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Alison Jc
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65 views

Accounting2 Task 7

- The document provides information about depreciation methods for an asset purchased for €2,045,000 with a 10 year useful life and €100,000 residual value. - It describes the straight line, units of production, and double declining balance depreciation methods and provides the calculations and journal entries for each. - It also addresses adjusting estimates, impairment losses, and compares the depreciation expense over the asset's life for each method.

Uploaded by

Alison Jc
Copyright
© © All Rights Reserved
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Depreciation methods task 7

Rick Steijns

Acquisition costs: € 2,045,000.00


Residual value € 100,000.00
Lifetime in years 10
depreciation rate 10%
DBB rate 20%
Total units of books produced 700000

Straight line method


formula: cost - residual value
useful life in years

Units of production method


formula: cost - residual value
Units produced in lifetime

Double declining balance method

first: Calculate depreciation rate (1/lifetime in years)

Second: Calculate DBB rate (2x depreciation rate)

Third: Multiply the beginning asset book value with the DBB rate

Year Asset cost


1/1/2011 € 2,045,000.00
1/1/2012
1/1/2013
1/1/2014
1/1/2015
1/1/2016
1/1/2017
1/1/2018
1/1/2019
1/1/2020
1/1/2021

GAIN OR LOSS ON ASSET SALE Straight line


Book value dec 31 2014 € 1,461,500.00
Disposal value € 1,100,000.00
Gain or loss € -361,500.00

Straight line journal entry


dec 31 2014 Cash
Accumulated depreciation
Loss on sale of PPE
Equipment

Units of production journal entry


dec 31 2014 Cash
Accumulated depreciation
Loss on sale of PPE
Equipment

Double declining journal entry


dec 31 2014 Cash
Accumulated depreciation
Gain on sale of PPE
Equipment

CHANGE ON ESTIMATE 10 years


€ 194,500.00 per year
Accumulated depreciation jan. 2013 € 389,000.00
Difference (shortage) € 32,111.11
Recover in year 3 € 242,666.67

IMPAIRMENT LOSS
Dec 2013 is 2 years accumulated depreciation

Acquisition costs € 2,045,000.00


Accumulated depreciation € 389,000.00
Book value € 1,656,000.00
recoverable amount € 1,000,000.00
Impairment loss € 656,000.00
2045000 -100000
10

2045000 -100000
700000

10%

20%

the DBB rate

Depreciation for the year


DBB rate Asset carrying amountDepreciation expense
20%
20% € 2,045,000.00 € 409,000.00
20% € 1,636,000.00 € 327,200.00
20% € 1,308,800.00 € 261,760.00
20% € 1,047,040.00 € 209,408.00
20% € 837,632.00 € 167,526.40
20% € 670,105.60 € 134,021.12
20% € 536,084.48 € 107,216.90
20% € 428,867.58 € 85,773.52
20% € 343,094.07 € 68,618.81
20% € 274,475.25 € 174,475.25

Units of productionDouble declining


€ 1,378,142.86 € 1,047,040.00
€ 1,100,000.00 € 1,100,000.00
€ -278,142.86 € 52,960.00

€ 1,100,000.00
€ 583,500.00
€ 361,500.00
€ 2,045,000.00

€ 1,100,000.00
€ 666,857.14
€ 278,142.86
€ 2,045,000.00

€ 1,100,000.00
€ 997,960.00
€ 52,960.00
€ 2,045,000.00

9 years
€ 210,555.56
€ 421,111.11

Journal entry dec 31 2014 Impairment loss


Accumulated depreciation and impairment loss
€ 194,500.00 per year
=

€ 2.779 per unit (book)


=

Accumulated Depreciati Asset carrying amount

€ 409,000.00 € 1,636,000.00
€ 327,200.00 € 1,308,800.00
€ 261,760.00 € 1,047,040.00
€ 209,408.00 € 837,632.00
€ 167,526.40 € 670,105.60
€ 134,021.12 € 536,084.48
€ 107,216.90 € 428,867.58
€ 85,773.52 € 343,094.07
€ 68,618.81 € 274,475.25
€ 174,475.25 € 100,000.00
€ 656,000.00
€ 656,000.00
€ 2.779
Depreciation for the year
Year Straight line Units of production Double declining
1 € 194,500.00 € 222,285.71 € 409,000.00
2 € 194,500.00 € 222,285.71 € 327,200.00
3 € 194,500.00 € 222,285.71 € 261,760.00
4 € 194,500.00 € 222,285.71 € 209,408.00
5 € 194,500.00 € 222,285.71 € 167,526.40
6 € 194,500.00 € 166,714.29 € 134,021.12
7 € 194,500.00 € 166,714.29 € 107,216.90
8 € 194,500.00 € 166,714.29 € 85,773.52
9 € 194,500.00 € 166,714.29 € 68,618.81
10 € 194,500.00 € 166,714.29 € 174,475.25
Total € 1,945,000.00 € 1,945,000.00 € 1,945,000.00

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