While calculating the cost of the equipment, delivery and installation costs will be capitalized since, they are necessary to bring the asset to its intended use. Hence cost of equipment will be $270000. Journal entries for the year 20x4 will be, Jan 20x4 equipment a/c dr 270000 To bank a/c 270000 Dec 20x4 depreciation expense a/c dr 22500 To accumulated depreciation a/c 22500 (Cost of equipment - salvage value)/ estimated production = unit of production rate = (270000 - 20000)/ 2000000 = 0.125 Depreciation expense for the year = 0.125*180000 = 22500. Depreciation expense for 20x7 by diminishing balance method(assumption : method is used since 20x4) (270000 - 20000)* 30% = 75000 20x4 (195000 - 20000)*30% = 52500 20x5 (142500 - 20000)*30% = 36750 20x6 (105750 - 20000)*30% = 25725 20x7 Depreciation using SLM for 20x4 = (270000-20000)/8 = 31250 Gain or loss on sale in 20x8 using SLM method of depreciation. Useful life = 8 years, By end of 20x8 5 years are completed. Hence carrying amount at the end of 20x8 = 270000 - (270000-20000)*5/8 = $113750 Since equipment is sold for 70000, Loss on disposal = 113750 - 70000 = $43750.

SOLUTION: DELL

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