Question

At 30 June 2015, the financial statements of McMaster Ltd showed a building with a cost...

At 30 June 2015, the financial statements of McMaster Ltd showed a building with a cost (net of GST) of $324,000 and accumulated depreciation of $164,000. The business uses the straight-line method to depreciate the building. When acquired, the building's useful life was estimated at 30 years and its residual value at $65,000. On 1 January 2016, McMaster Ltd made structural improvements to the building costing $102,000 (net of GST). Although the capacity of the building was unchanged, it is estimated that the improvements will extend the useful life of the building to 40 years, rather than the 30 years originally estimated. No change is expected in the residual value.

1. Calculate the number of years the building had been depreciated to 30 June 2015

2. Prepare the general journal entry to record the cost of the structural improvements on 1 January 2016

3. Prepare the general journal entry to record the building’s depreciation expense for the year ended 30 June 2016. Assume no depreciation had been recorded since 30 June 2018.

Homework Answers

Answer #1

1. Depreciation => (324,000-65,000)/30 years = 8,633.33

Accumulated Depreciation => 164,000/8633.33 = 19 years.

2,3.

Jounral Entries
31st December 2015 Depreciation expense Dr (8633.33/2) 4,316.67
To accumulated depreciation 4316.67
(Upto 31/12/2015)
Accumulated depreciation Dr (164,000+4316.67) 168,316.67
To Buildings 168,316.67

(Written back)

Buildings Dr 102,000
GST (ASSUMED 10%) 10,200
To Cash 112,200
Depriecation expense Dr 4700
To Accumulated Depreciation 4700

Depreciation => (Opening -Accumualted depreciation +Addition -Residual value )/(Remanining Life)

Ie., [(324000-168,316.67)+102,000 - 65,000]/(20.5) = 9400 per annum.

Since we've to consider from 1/1/16 to 30/6/16 so, 9400×1/12 = 4700.

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