Question

Lisa Limited Pty Ltd purchases a new equipment on 1 January 2015. The equipment cost was $200,000 and useful life was 10 years with zero residual value. On January 1, 2019, the company decides that the equipment will last total 20 years rather than 10 years. The company uses straight-line method of depreciation and the fiscal year end is 31 December.

Required:

• Calculate depreciate for 2015, 2016, 2017 and 2018.
• How will the equipment be reported on the balance sheet on December 31, 2018?
• Calculate depreciation for 2019 and prepare a journal entry for the depreciation expense.

Answer 1

1.

a.

Depreciation expense will remain same for all the years under straight line method.

Depreciation expense = $200,000 / 10

= $20,000

Depreciation for 2015, 2016, 2017 and 2018 is $20,000 each.

b.

Accumulated depreciation = $20,000 X 4 = $80,000

Assets
Equipment	$200,000
Less: Accumulated depreciation	$80,000
	$120,000

c.

Total useful life of the equipment is assessed as 20 years. 4 years are already finished from 2015 to 2018.
Remaining useful life = 20 - 4 = 16 years

Depreciation expense for 2019:

= $120,000 / 16

= $7,500

Journal entry to record depreciation:

Date	Account Titles	Debit	Credit
Dec 31, 2019	Depreciation expense	$7,500	-
	Accumulated depreciation	-	$7,500