Question

On 1 January 2018 Augusta Ltd paid $39,500 for a machine with a useful life of 10 years and a residual value of $1,500. The company uses a straight-line method to allocate depreciation expense. The machine was sold on 31 May 2020 for $8,000. Augusta Ltd has its year-end on 30 June.

Required

Prepare all necessary general journal entries to recognise the sale of the machine on 31 May 2020. Show all workings.

Answer 1

Solution:

Annual depreciation on machine = (Cost - Residual value) / useful life = ($39,500 - $1,500) /10 = $3,800

Depreciation to be charged on 31.05.2020 = $3,800*11/12 = $3,483

Accumulated depreciation till 31.05.2020 = $3,800 * 29 / 12 = $9,183

Augusta Ltd - Journal Entries
Date	Particulars	Debit	Credit
31-May	Depreciation expense Dr	$3,483.00
	To Accumulated depreciation - Equipment		$3,483.00
	(To record depreciation expense)
31-May	Cash Dr	$8,000.00
	Accumulated depreciation - Equipment Dr	$9,183.00
	Loss on sale of equipment Dr	$22,317.00
	To Equipment		$39,500.00
	(To record sale of equipment)