Chapter 10 exercises :

1. 1/7/2006, company A bought a car for $36000. Estimated residual value was $
$6000, and the car would have a useful life of 5 years. Company A uses the
straight line method to allocate the depreciation.
30/6/2009, company sold this car for $15000 to buy another car.
Prepare the journal entry to record the disposal of the car.
Depreciation expense = (36000 – 6000)/5 = $6000/ year
30/6/2009 Depreciation expense 3000
Accumulated depreciation 3000
30/6/2009 Accumulated depreciation = 3000 + 6000 + 6000 + 3000 = $18000
Book value = 36000 – 18000 = 18000
Loss = 15000 – 18000 = -$3000
30/6/2009 Cash 15000
Accumulated depreciation 18000
Loss on disposal of asset 3000
Equipment 36000

2. 1/5/2009, Company Y bought a machine costed $ 8000, all other costs to

bring this machine to the condition available for use were $1000. This machine
has useful life of 10 years. Salvage value is $1000. Company use the straight
line method for depreciation.

Record the depreciation expense for the year ended 31/12/2009, 2010.

Depreciation expense =( (8000 + 1000) – 1000)/10 = $800

31/12/2009 Depreciation expense 533

Accumulated depreciation 533

31/12/2010 Depreciation expense 800

Accumulated depreciation 800

On 30/6/2011, Company decided to sell the machine.

Record the disposal of the machine if

a) its disposal value is $7000.

b) the machine was sold for $8000.
c) The machine was seriously damaged so the company decided to discard it.
30/6/2011 Depreciation expense 400
Accumulated depreciation 400
30/6/2011 Accumulated depreciation = 533 + 800 + 400 = 1733
Book value = 9000 – 1733 = $7267
a. Cash = $7000
-> Loss = 7000 – 7267 = -$267
30/6/2011 Cash 7000
Accumulated depreciation 1733
Loss on disposal of asset 267
Equipment 9000
b. Cash = 8000
-> Gain = 8000 – 7267 = $733
30/6/2011 Cash 8000
Accumulated depreciation 1733
Gain on disposal of asset 733
Equipment 9000
c. Loss = 0 – 7267 = -$7267
30/6/2011 Loss on disposal of asset 7267
Accumulated depreciation 1733
Equipment 9000

3. Thomas Enterprises purchased a depreciable asset on October 1, 2008 at a

cost of $100,000.
The asset is expected to have a salvage value of $15,000 at the end of its five-
year useful life. If the asset is depreciated on the double declining balance
method, what will the asset's book value on December 31, 2010 be? Thomas
Enterprises should recognize what amount of depreciation expense in 2012? 
Depreciation rate = 100% : 5 x 2 = 40%

Year Cost Beginning book value Depreciation ending

expense Accumulated
depreciation

2008 100000 100000 10000 10000

2009 100000 90000 36000 46000

2010 100000 54000 21600 67600

2011 100000 32400 12960 80560

2012 10000 19440 4440 85000

15000

 4. Lomax Enterprises purchased a depreciable asset for $22,000 on March 1,

2008. The asset will be depreciated using the straight-line method over its
four-year useful life. Assuming the asset's salvage value is $2,000, what will be
the amount of accumulated depreciation on this asset on December 31, 2011? 

Depreciation expense = (22000 - 2000)/4 = $5000/ year

Accumulated depreciation 31/12/2011 = 5000 x 10/12 + 5000 x 3 = $19,167

1.

Depreciation expense (Straight line) = (Cost – Residual Value)/ Useful Life

= (36,000 – 6000) / 5 = $6,000 pa.
30/6/2009 Dr Depreciation expense 3000
Cr Accumulated depreciation 3000
From 1/7/06 – 30/6/09 = 3 years
Accumulated depreciation= $6,000 x 3 = $18,000
(This is $3000 for 2006, $6000 each for 2007and 2008 and $3000 for 2009.)

Proceeds 15,000
Carrying Amount (36,000 - 18,000) 18,000
Loss 3,000

Dr Cash 15,000
Dr Accumulated depreciation – Truck 18,000
Dr Loss on Sale of Truck 3,000
Cr Truck – cost 36,000

2.

Depreciation expense for a year = (8000 – 0)/10 = $800

Dec 31, 2009 Dr Depreciation expense 800

Cr Accumulated depreciation 800

Dec 31, 2010 Dr Depreciation expense 800

Cr Accumulated depreciation 800

30 June 2011 Cr Accumulated depreciation 800

Dec 31, 2010 Dr Depreciation expense 400 (800/2 = 400)

Cr Accumulated depreciation 400

a) Proceeds 7,000
Carrying Amount (8000 - 2000) 6000
Gain 1,000

Dr Accumulated depreciation 2000

Dr Cash 7000

Cr Gain on disposal of Assets 1000

 Cr Machine 8000

b) Proceeds 4,000
Carrying Amount (8000 - 2000) 6000
Loss (2,000)

Dr Accumulated depreciation 2000

Dr Cash 4000

Dr Loss on disposal of asset 2000

Cr Machine 8000

c) Dr Accumulated depreciation 2000

Dr Loss on discard of asset 6000

Cr Machine 8000

3.

Accordingly, the asset's book value at the end of 2010 would be $32,400.
BOY BV = Beginning of Year Book Value
DB Rate = Declining Balance Rate of Depreciation (100%/5 x 2)
EOY BV = End of Year Book Value

4. [(22,000 - 2,000) / 4] x 10/12 = $4,166.67 of accumulated depreciation at the end of 2008. Since
annual depreciation expense is $5,000 [(22,000 - 2,000) / 4], accumulated depreciation on December
31, 2011 would be $19,166.67 ($5,000 per year for three years + $4,166.67 in the partial year of
2008)