Overview
Q1. Al Khaleej Corporation purchased a new machine on January 1st, 2010. The cost of this machine was $200,000. The company estimated that the machine would have a salvage value of $20,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 40,000 hours. (5 Marks)
Calculate deprecation expenses, accumulated depreciation, and book value of the machine for each of the year using:
i.Straight Line Method
ii.Declining balance method (Based on twice the straight-line rate)
iii.Activity Method if Al Khaleej Corporation uses the machine hours as follows:
Year | Hours used |
2010 | 7,000 |
2011 | 8,500 |
2012 | 8,000 |
2013 | 9,000 |
2014 | 7,500 |
You can use following table to present your answer: (specimen format / table)
Year | Depreciation Expense | Accumulated Depreciation | Book Value |
Answer:
Q2. Riyadh Manufacturing Company exchanged equipment used in its manufacturing
operations plus $4,500 in cash for similar equipment used in the operations of Medina.
Manufacturing Company. The following information pertains to the exchange: (5 Marks)
Riyadh Manufacturing | Medina Manufacturing | |
Equipment (cost) | $63,000 | $63,000 |
Accumulated Depreciation | 42,750 | 22,500 |
Fair value of equipment | 30,375 | 34,875 |
Cash given up | 4,500 |
Required:
i. Calculate gain or loss on exchange.
ii. Prepare the journal entries to record the exchange on the books of both companies when:
a)Riyadh Manufacturing has commercial substance.
b)Riyadh Manufacturing lacks commercial substance
c)Medina Manufacturing has commercial substance.
d)Medina Manufacturing lacks commercial substance
Answer:
Q3. Presented below are the components related to an office building that Jeddah construction
Company is considering purchasing for SAR10,000,000.
Component Useful Life Value
Building structure 60-year life 5,400,000
Building engineering 30-year life 2,400,000
Building external works 30-year life 900,000
Instructions
(a)Compute depreciation expense for 2010, assuming that Jeddah construction uses component depreciation. ( 2.5 marks)
(b)Assume that the building engineering was replaced in 20 years at a cost of SAR2,600,000.
Prepare the entry to record the replacement of the old component with the new component. (2.5 marks)
Answer to Q3