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Homework answers / question archive / Juicy Wiggle Limited, a company involved in the manufacture of energy juices, purchased new manufacturing machine on the 1 March 2017 for an amount of R275 000
Juicy Wiggle Limited, a company involved in the manufacture of energy juices, purchased new manufacturing machine on the 1 March 2017 for an amount of R275 000. The machine had a useful life of 5 years on this date and a RO residual value. The machine had a carrying value of R165 000 on the 28th February 2019. On the 1 March 2019, the residual value of the equipment was now estimated to be R20 000. Required: 1. Prepare the journal entries in respect of depreciation for the year ended 29th February 2020 using the Re-allocation Method assuming no journals had been passed yet. (10) 2. Prepare the Profit before tax note AND the note in terms of IAS 8, the statement on Accounting policies, estimate and errors for the year ended 29th February 2020 (10) All workings must be shown. Include comparatives where applicable. Ignore tax implications.
Before answering this question, we must first understand what the depreciation is.
Depreciation is an accounting method of allocating the cost of fixed asset over its life expectancy.
Now coming to the question. It is given that
Cost of machine 275000
Residual value 0
Life - 5 years
Depreciation per year:- (cost - residual value)/no. of years(life)
275000-0/5= 55000
Now machine has a carrying value of 165000 on 28 Feb 2019.
On 1 march 2019, it's residual value is estimated to be 20000.
Revised depreciation = (165000-20000)/3
= 48333 approx
Now depreciation entry for the year ended 28 Feb 2020 will be
Depreciation A/C Dr. 48333
To machine A/C 48333.
If the effect of depreciation is retrospectively then.
Depreciation per year to have been charged (275000-20000)/5
51000 per year
55000-51000 = 4000*2 = 8000
So 8000 excessed depreciation charged will have to be adjusted against the depreciation charged in that year which is 51000-8000= 43000
Entry for depreciation will be
Depreciation a/c Dr. 43000
To machine a/c 43000.
So this is how the depreciation would be charged
