# Depreciation Straight Line Method Questions and Answers

We have covered various methods of depreciation. Here we are sharing question answer for Straight Line method.

JK Co. bought a heavy duty machinery for its production process on July 1, 2008 at a price of \$ 200,000 with credit terms of 2/10, n/30. In order to purchase this machinery, JK has to incur the following additional expenses on the same date:

 Sales tax 15 % Freight charges 25,000 Transportation from railway to the JK Factory 3,000 Installation charges 8,000

It is the company policy to depreciate the machinery over the 10 years. This machine has a scrape value of \$ 10,000. Straight line method of depreciation is to be used for charging the depreciation. JK closes its accounting year on December 31 each year.

Required

1. Calculate the cost of the machine and record the journal entry for acquisition of the machine.
2. Calculate the annual depreciation expenses.
3. Calculate the depreciation expense and accumulated depreciation for December 31, 2008, 2009 & 2010.
4. Record the adjusting entries for depreciation expenses for the year ended December 31, 2008, 2009 & 2010.
5. Prepare the partial balance sheet as at December 31, 2008, 2009 & 2010.

Solution

Cost of Machine

 List price of the machine 200,000 Less: cash discount (200,000 x 2 %) (4,000) Cash price of machinery 196,000 Add: other expenses related to machinery acquisition Sales tax 196,000 x 15 % 29,400 Freight charges 25,000 Transportation 3,000 Installation charges 8,000 65,400 Total cost of the machine 261,400

JK Co.

General Journal Entries

 Date Particulars Debit Credit 01 July 2008 Machine Cash (recording of purchase of machinery) 196,000 196,000 Sales tax Freight charges Transportation Installation charges Cash (Recording of initial expenses for bringing the machinery into the factory and its intended use.) 29,400 25,000 3,000 8,000 65,400 Machine Sales tax Freight charges Transportation Installation charges (transferring the initial expenses to the machine account) 65,400 29,400 25,000 3,000 8,000

Annual depreciation Using Straight Line

Annual depreciation expense = (cost – residual value) / Estimated life = (261,400 – 10,000) / 10 = \$25,140 per annum

Depreciation expense & Accumulated Depreciation

 Depreciation expense Accumulated Depreciation For Dec 31, 2008 = 25,140 x 6/12 12,570 12,570 For Dec 31, 2009 25,140 37,710 For Dec 31, 2010 25,140 62.850

JK Co.

Journal Entries – Depreciation

 Date Particulars Debit Credit Dec 31, 2008 Depreciation expense Allowance for depreciation (recording of depreciation expense for the year 2008) 12,570 12,570 Dec 31, 2009 Depreciation expense Allowance for depreciation (recording of depreciation expense for the year 2008) 25,140 25,140 Dec 31, 2010 Depreciation expense Allowance for depreciation (recording of depreciation expense for the year 2008) 25,140 25,140

JK Co.

Balance Sheet Partial

As on December 31,

 2008 2009 2010 Machine total cost 261,400 261,400 261,400 Less: accumulated depreciation (12,570) (37,710) (62,850) Book value of machine 248,830 223,690 198,550
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