Lecture sheet (3)

Chapter 10
Plant Assets, Natural Resources and Intangibles
Important Terms:
a)Cost: consist of all necessary expenditures to acquire the plant asset and to prepare it for its intended
use.
b) Salvage Value: Residual Value/ Scrap, is an estimate of the assets value, or the amount the owner
expects to receive from disposing the asset at the end of its benefit period.
c) Useful life: the estimated years of using and benefiting from the asset in the copmpany's operations.
d) Depreciable cost: is the cost less the salvage value, to be allocated over the useful life.
e) Depreciation expense:it is the depreciable cost allocated over the useful life. It is a noncash expense,
appear in the Income statement, Dr. its normal balance.
f) Accumulated Depreciation: a contra asset account, Cr. Its normal balance. Appear in the Balance
sheet reduced from its related fixed asset to give the net book value.
g) Book Value: is the difference between the cost and accumulated depreciation.Compared with the
disposal value to determine the gain or loss from disposal.
h) Depreciation methods: straight-line, unit of production & double- declining methods.

Ex:1
Nike Corporation purchased a new equipment on Jan 1, 2013, for $ 14,500. The equipment was expected to
have a useful life of five years and salvage value of $1,000.The company engineers estimated that the
equipment would have a useful life of 7,500 hours.It was used 1,500 hours in2013, 2,625 hours in 2014, 2,250
hours in 2015, 750 hours in 2016, 375 hours in 2017. The companys year end in December 31.
Required :Prepare the depreciation shedule using:
(a) Straight-Line, (b)Unit- of- Production, and (c) Double-Declining Balance.

Ex:2
Du Page Corporation purchased a new equipment on Jan 1, 2013, for $18,000. The equipment was expected to
have a useful life of four years and salvage value of $ 2,000. The company engineers estimated that the
equipment would have a useful life of 160,000 hours processed. It was used 40,000 hours in 2013, 60,000 hours
in 2014, 35,000 hours in 2015, 25,000 hours in 2016. The companys year end in December 31.
Required: Prepare the depreciation shedule using:
(a) Straight-Line, (b)Unit- of- Production, and (c) Double-Declining Balance.

Ex:3
Sydney Company owns a machine that cost $250,000 and has accumulated depreciation $182,000.Prepare the
entry to record the disposal of the machine on Jan 3 under each of the following independent assumptions:
1. The machine needed extensive repairs, and it was not worth repairing. Sydney disposed of the
machine, receiving nothing in return.
2. Sydney sold the machine for $35,000 cash.
3. Sydney sold the machine for $68,000 cash.
4. Sydney sold the machine for $80,000 cash.

Ex:4
Rayya Co. purchases and installs a machine on Jan.1, 2013, at a total costof $72,000. Straight line
depreciation is taken each year for 3 years assuming a 5 year life and no salvage value.The machine is
disposed of on July1, 2016,during its fourth year of service.Prepare the entries to record the partial years'
depreciation on July 1, 2016, and to record the disposal under the following assumptions: (1) the machine is
sold for $22, 000 cash,and (2) the machine is sold for $15, 000 cash,(3) the machine is sold for $18, 000 cash