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Part 6 Accounting principles (2) 2025

The document discusses accounting principles related to plant assets, natural resources, and intangible assets, focusing on the double-declining balance method of depreciation. It provides examples and solutions for calculating depreciation expenses, accumulated depreciation, and adjustments for changes in estimated useful life or salvage value. Additionally, it covers the retirement and disposal of plant assets, including journal entries for fully depreciated and partially depreciated assets.

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minaadelsaad1991
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5 views

Part 6 Accounting principles (2) 2025

The document discusses accounting principles related to plant assets, natural resources, and intangible assets, focusing on the double-declining balance method of depreciation. It provides examples and solutions for calculating depreciation expenses, accumulated depreciation, and adjustments for changes in estimated useful life or salvage value. Additionally, it covers the retirement and disposal of plant assets, including journal entries for fully depreciated and partially depreciated assets.

Uploaded by

minaadelsaad1991
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 7

Accounting principles (2) 2025

Chapter (5) : Plant asset , natural resources and intangible assets

Third : Double – declining balance


 Accelerated depreciation method that provide a decreasing depreciation
expense every year
 Double declining apply a constant percentage to book value to
determine depreciation
 Double declining balance method ignore salvage value

Solution steps :

1. Straight line rate =


2. Double declining Depreciation rate = Straight line rate * 2
3. Annual depreciation expense = beginning book value * depreciation rate
Year Beginning X Depreciation = Annual Accumulated Book value at end
book value rate depreciation depreciation of year
expense

Important note :

 At first year :

Beginning book value = cost


Accumulated depreciation = annual depreciation expense
 At last year:

Annual depreciation expense = beginning book value –salvage value

Page 1 of 7
Accounting principles (2) 2025

Example(1):

Grey Company purchased a new van for floral deliveries on January 1, 2008.
The van cost $36,000 with an estimated life of 5 years and $9,000 salvage
value at the end of its useful life. The double- declining-balance method of
depreciation will be used.
1. What is the depreciation expense for 2008?
A. $7,200
B. $5,400
C. $10,800
D. $14,400
2. What is the balance of the Accumulated Depreciation account at the end of 2009?
A. $5,760
B. $17,280
C. $23,040
D. $8,640

SOLUTION

1. Straight line rate =

= =20%

2. Double declining Depreciation rate = Straight line rate * 2


=20%*2 = 40%
3. Annual depreciation expense = beginning book value * depreciation rate
Year Beginning X Depreciation = Annual Accumulated Book value at end of year
book rate depreciation depreciation
value expense
2008 36000 X 40% = 14,400 14,400 36000-14,400=21600
2009 21600 X 40% = 8640 23040

Page 2 of 7
Accounting principles (2) 2025
Example(2):

On October 1, 2008, Dole Company places a new asset into service. The
cost of the asset is $60,000 with an estimated 5-year life and $15,000
salvage value at the end of its useful life. assuming that Dole Company
uses the double-declining-balance method of depreciation?
1. What is the depreciation expense for 2008?
A. 60,000
B. $24,000
C. $6,000
D. $14,400
2. What is the book value of the plant asset on the December 31, 2008?
A. $6,000
B. $45,000
C. $54,000
D. $57,000
3. What is the balance of the Accumulated Depreciation account at the end of 2009?
A. $6,000
B. $24,000
C. $30,000
D. $27,600

SOLUTION

4. Straight line rate = = = 20%


5. Double declining Depreciation rate = Straight line rate * 2
=20%*2 = 40%
6. Annual depreciation expense = beginning book value * depreciation rate
Year Beginning X Depreciation = Annual depreciation Accumulated Book value at end of
book rate expense depreciation year
value
2008 60,000 x 40% = 24,000*3/12=6000 6000 60,000-
6,000=54,000
2009 54,000 x 40% = 21,600 27,600

Page 3 of 7
Accounting principles (2) 2025

Revised depreciation expense


The estimated useful life or salvage value of the asset changed for any reason So ,
annual depreciation will be changed (revised depreciation should be computed) .
SOLUTION steps :

Before change After change


 Depreciable cost = New book value =
cost –salvage value cost –accumulated depreciation
 Annual depreciation expense New depreciation expense =
=
=
 Accumulated depreciation

Example(3)

Muhamed Company purchased a machine on January 1, 2006, for $12,000


with an estimated salvage value of $3,000 and an estimated useful life of 8
years. On January 1, 2008, Santayana decides the machine will last 12 years
from the date of purchase. The salvage value is still estimated at $3,000.
Using the straight-line method, the new annual depreciation will be

A. $675.
B. $750.
C. $900.
D. $1,000.

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Accounting principles (2) 2025

SOLUTION

Before change After change


 Depreciable cost = New book value =
cost –salvage value cost –accumulated depreciation
12000-3000 =9000 12000-2250 =9750
 Annual depreciation expense New depreciation expense =
=
=

= =1,125 = =675
 Accumulated depreciation =
1125 *2 =2250

Disposal of plant assets:


A. Retirement .
B. Sale .
C. Exchange .
First : Retirement of plant assets
Case 1:
Asset is retired when it is fully depreciated :
 No gain , No loss.
 Accumulated depreciation is closed in debit and asset in credit:

Accumulated depreciation XXX


Asset XXX

Page 5 of 7
Accounting principles (2) 2025

Case 2:
asset is retired Before it is fully depreciated :
 There is a loss on disposal that will be recorded in Dr.
 Accumulated depreciation is closed in debit and asset in credit:

Accumulated depreciation XXX


Loss on disposal XXX
Asset XXX

Example(4):

Sunset company retires equipment, its cost 32,000 . Accumulated depreciation is


32,000 .
Required

Prepare the journal entry to record retirement

SOLUTION

Asset is retired when it is fully depreciated :


 No gain , No loss.
 Accumulated depreciation is closed in debit and asset in credit:

Accumulated depreciation 32000


Equipment 32000

Page 6 of 7
Accounting principles (2) 2025
Example(5):

Sunset company discard (retired) delivery truck that cost 18,000 and has accumulated
depreciation of 14000
Required

prepare the journal entry to record retirement

SOLUTION

Asset is retired Before it is fully depreciated :


 There is a loss on disposal will be recorded in Dr. by 18000-14000 = 4000
 Accumulated depreciation is closed in debit and asset in credit:

Accumulated depreciation 14000


Loss on disposal 4000
Truck 18000

Page 7 of 7

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