Question

On Jan 01, 2016 Jawwal Co. purchased a manufacturing plant costing $270,000. Jawwal estimated the plant’s life and residual value at 5 years and $20,000, respectively. In Jan 2020 Jawwal revised the plant’s life up from 5 to 7 years,and the residual value down to $1,000.

For two marks journalize the depreciation expense for 2020, assuming Jawwal uses the straight-line method of depreciation. SHOW PLAUSIBLE CALCULATIONS TO GET CREDIT

Answer 1

Date of purchase	Jan 1, 2016
Purchase price	270,000
Useful life	5years
Residual value	20,000
Depreciation p.a [(270,000 - 20,000)/ 5 years]	50,000
Depreciation for 4 years [Jan 1, 2016 - Dec 31, 2019]	200,000
Book value of asset as on Jan 1, 2020 [270,000 - 200,000]	70,000
Useful life	7 years
Remaining useful life [7 - 4]	3 years
Residual value	1,000
Depreciation expense for the year 2020 [(70,000 - 1,000)/ 3 years]	23,000

Thus, journal entry

Depreciation expense Dr. 23,000

To accumulated depreciation 23,000