ACCT1511 Study Guide - Quiz Guide: Tunein, Retained Earnings, Angus Young
Tutorial Questions for Topic 1
Q1: Problem 10.18 (Adapted): Repairs versus Capitalising
Gibbs Ltd operates a manufacturing facility to produce its key products. On 1 July
2016, the balance of an equipment account was as follows:
Manufacturing equipment $120,000
Accumulated depreciation ($78,000)
During 2017 financial year, Gibbs Ltd incurred the following costs which were paid
in cash:
Equipment maintenance and repairs $1000
Major equipment upgrade to improve efficiency $35,000
The equipment, when first purchased, had an expected useful life of 20 years, and
residual value is $7,200. Gibbs Ltd depreciates equipment on a straight line basis.
There have been no changes in the estimates of useful life, residual value and the
depreciation method.
Required:
a) What is the journal entry that was made on 30 June 2016 for depreciation on
manufacturing equipment? Show your workings.
Yearly depreciation expense: (120,000-7,200)/20=5,640
Dr Depreciation Expense 5,640
Cr Accumulated Depreciation 5,640
DO NOT WRITE OUTSIDE THE BOX
b) Indicate the effects of the two expenditures during 2017 on assets, liabilities and
shareholders’ equity:
Repair: Asset: Decrease (cash decrease); Liability: No Change; Shareholder’s
Equity: Decreases (expense increase)
Upgrade: Asset: No Change (cash decreases, equipment increases); Liability: No
Change; Shareholder’s Equity: No Change
DO NOT WRITE OUTSIDE THE BOX
c) Give the journal entries to record the two expenditures during the 2017 financial
year:
Repair: Dr Maintenance Expense $1000
Cr Cash $1000
Upgrade: Dr Equipment $35,000
Cr Cash $35,000
DO NOT WRITE OUTSIDE THE BOX
Q2: Asset Disposal
Cavalier sold two assets in the 2013 financial year end. On 1 July 2012, prior to their
disposal, the following were shown in the company’s account:
Machine
Costs
Residual
value
Expected
useful life
Accum. dep’n
(straight line)
1
$40,000
$5,000
7 years
$15,000
2
$62,500
$7,500
10 years
$0
Machine 1 was sold on 1 July 2012 for $10,000 cash. Machine 2 was sold on 30 June
2013 for $30,000. $20,000 was received in cash, and the remaining $10,000 on credit.
Required:
What journal entries are required to record the disposal of Machine 1?
Dr Cash 10,000
Dr Accumulated Depreciation - Machine 15,000
Dr Loss on Sale 15,000
Cr Machine 40,000
DO NOT WRITE OUTSIDE THE BOX
What journal entries are required to record the disposal of Machine 2?
Dr Cash 20,000
Dr Receivable 10,000
Dr Loss on Sale 27,000
Dr Accumulated Depreciation - Machine 5,500
Cr Machine 62,500
(Note that Machine 2 was sold on 30 June 2013, so depreciation expense must be
calculated for this additional year: (62,500-7,500)/10=5,500)
DO NOT WRITE OUTSIDE THE BOX
Q3: Mid-session exam 2010, semester 2: Question 1 (version a) Adapted.
The following information is taken from the accounts of Ray Ltd.
$000
Motor Vehicles, 1 January 2006
620
Motor Vehicles, 31 December 2006
740
Accumulated Depreciation – Motor Vehicles, 1 January 2006
230
Accumulated Depreciation – Motor Vehicles, 31 December 2006
290
Depreciation Expense – Motor Vehicles, year ended 31 December 2006
150
Gain on sale of motor vehicle, year ended 31 December 2006
10
Cost price of motor vehicles sold during the year
130
Required:
By using relevant t-account(s),
(a) calculate the cash proceeds from sale of Motor Vehicle, and
1. What we know, and don’t!
Dr Cash/Proceeds ???
Dr Accumulated Depreciation – Motor Vehicle ???
Cr Gain on Sale 10,000
Cr Motor Vehicle 130,000
2. Find Accumulated Depreciation
3. Make debits equal credits
Dr Cash/Proceeds 50,000
Dr Accumulated Depreciation – Motor Vehicle 90,000
Cr Gain on Sale 10,000
Cr Motor Vehicle 130,000
Cash proceeds from sale of motor vehicle = $50,000
DO NOT WRITE OUTSIDE THE BOX
Document Summary
Gibbs ltd operates a manufacturing facility to produce its key products. 2016, the balance of an equipment account was as follows: During 2017 financial year, gibbs ltd incurred the following costs which were paid in cash: The equipment, when first purchased, had an expected useful life of 20 years, and residual value is ,200. Gibbs ltd depreciates equipment on a straight line basis. There have been no changes in the estimates of useful life, residual value and the depreciation method. Do not write outside the box: indicate the effects of the two expenditures during 2017 on assets, liabilities and shareholders" equity: Repair: asset: decrease (cash decrease); liability: no change; shareholder"s. Upgrade: asset: no change (cash decreases, equipment increases); liability: no. Do not write outside the box: give the journal entries to record the two expenditures during the 2017 financial year: Cavalier sold two assets in the 2013 financial year end.
