Max has decided to go ahead with the purchase of the group of assets as it will allow him to diversify his production, but limit the amount he needs to borrow to achieve this.
The journal entry below represents Maxâs purchase of the assets.
1 July
Inventory
12,000
Testing Unit
5,730
Electric Car
17,190
Warehouse and Land
72,580
Sundry Creditor/Cash
107,500
(To record the acquisition of this group of assets)
Max has reviewed the other assets he currently owns and has compiled the following information as at 30 June this year (prior to making this acquisition)
Ezi-Lift Hoist
3,600
Acc. Dep'n â Ezi-Lift Hoist
605
Office Equip
660
Acc. Dep'n â Off Equip
231
Tools
2,500
Acc. Dep'n â Tools
919
Van
31,460
Depreciation for these assets is calculated by the straight-line method. The Ezi-Lift Hoist is expected to have a useful life of 10 years with a scrap value of $300. The Tools are expected to be useful for 10 years with a scrap value of $250, and the office equipment is expected to last 5 years and have no residual value. Max is happy to keep using this data for the foreseeable future. The Van will have a residual value of $2,000 and a useful life of 5 years.
Max has asked for your help on how to depreciate the assets he has recently acquired.
Explain to Max why the figures he has calculated are correct and remind him of the purpose of depreciation and the incorrect association he has made with the current market value
__________________________________________________________________________
___________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Max has re-evaluated the usefulness of the rest of his assets and also provided you with the following information based on the calculations he had performed to the end of the last financial year. Max will continue to use the depreciation rates established in the last case study.
Ezi-Lift Hoist
3,600
Acc. Dep'n â Ezi-Lift Hoist
935
2,665
Office Equip
660
Acc. Dep'n â Off Equip
363
297
Tools
2,500
Acc. Dep'n â Tools
1144
1,356
Van
31,460
Accumulated Depreciation â Van
5,892
25,568
Testing Unit
5,730
Accumulated Depreciation â Testing Unit
2,466
3,264
Electric Car
17,190
Accumulated Depreciation â Electric Car
1,466
15,724
Warehouse
34,032
Accumulated Depreciation â Warehouse
3,403.20
30,628.80
Max has decided to go ahead with the purchase of the group of assets as it will allow him to diversify his production, but limit the amount he needs to borrow to achieve this.
The journal entry below represents Maxâs purchase of the assets.
| 1 July | Inventory | 12,000 | ||
| Testing Unit | 5,730 | |||
| Electric Car | 17,190 | |||
| Warehouse and Land | 72,580 | |||
| Sundry Creditor/Cash | 107,500 | |||
| (To record the acquisition of this group of assets) |
Max has reviewed the other assets he currently owns and has compiled the following information as at 30 June this year (prior to making this acquisition)
| Ezi-Lift Hoist | 3,600 | |
| Acc. Dep'n â Ezi-Lift Hoist | 605 | |
| Office Equip | 660 | |
| Acc. Dep'n â Off Equip | 231 | |
| Tools | 2,500 | |
| Acc. Dep'n â Tools | 919 | |
| Van | 31,460 |
Depreciation for these assets is calculated by the straight-line method. The Ezi-Lift Hoist is expected to have a useful life of 10 years with a scrap value of $300. The Tools are expected to be useful for 10 years with a scrap value of $250, and the office equipment is expected to last 5 years and have no residual value. Max is happy to keep using this data for the foreseeable future. The Van will have a residual value of $2,000 and a useful life of 5 years.
Max has asked for your help on how to depreciate the assets he has recently acquired.
Explain to Max why the figures he has calculated are correct and remind him of the purpose of depreciation and the incorrect association he has made with the current market value
__________________________________________________________________________
___________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Max has re-evaluated the usefulness of the rest of his assets and also provided you with the following information based on the calculations he had performed to the end of the last financial year. Max will continue to use the depreciation rates established in the last case study.
| Ezi-Lift Hoist | 3,600 | ||
| Acc. Dep'n â Ezi-Lift Hoist | 935 | 2,665 | |
| Office Equip | 660 | ||
| Acc. Dep'n â Off Equip | 363 | 297 | |
| Tools | 2,500 | ||
| Acc. Dep'n â Tools | 1144 | 1,356 | |
| Van | 31,460 | ||
| Accumulated Depreciation â Van | 5,892 | 25,568 | |
| Testing Unit | 5,730 | ||
| Accumulated Depreciation â Testing Unit | 2,466 | 3,264 | |
| Electric Car | 17,190 | ||
| Accumulated Depreciation â Electric Car | 1,466 | 15,724 | |
| Warehouse | 34,032 | ||
| Accumulated Depreciation â Warehouse | 3,403.20 | 30,628.80 |
