cash price september30 62400 including sale taxes cash down

cash price september30 ,62400 including sale taxes, cash down payment 7800,capitalstock 600share with current market price of birr42as share---25200,promissory notespayable in24 equal mounthly installments ,includeing interest----36000,total---69000. the following aditional cost were incurred before the machine was ready for use installation-------2600,diret costof trials runs----1000.the machine was expected to produce 100000 units during its economic life. it was placed inservice october 4 year 1 . instraction ; 1) determine the cost pof the machine for financial accounting purpose. assume that the discounton the promissory note is difference between the total payment tobe made and the cashprice of the machine. 2) assuming that the estimated net resedual value of the machine is birr6000 andthat the economic life estimated to be five years, compute depreciation foryears1(3mounth) andyear 2 under1) straight line method 2)sumof the year digits method 3)rateof40% applied to decilining carrying amount of the machine.4)out put method(the machine produced15000 units inyear1 and24000 units in year)

Solution

SOLUTION A :-

(1) COST OF THE MACHINE SHALL BE AS FOLLOWS:-

cost of the machine shall incude all the costs and expenses incurred upto the date when the machine became ready to use in condition.

down payment =7800

capital stock(600*42) =25200

promissory notes payable

( including interest) =36000

installation cost =2600

trial runs cost =1000

discount on promissory notes

(69000-62400) =(6600)

cost of the machine =66000

CALCULATION OF DEPRECIATION;-

1. STRAIGHT LINE METHOD= COST-SCRAP VALUE/ ECONOMIC LIFE OF AN ASSETS

DEPRECIATION FOR YEAR 1 ( 3 MONTHS)={66000-6000/5}*3/12=3000

DEPRECIATION FOR YEAR 2 = 66000-6000-3000/4=14250

2. DIMINISHING BALANCE METHOD:-

YEAR 1= 66000*40%*3/12=6600

year 2 = 66000-6600=59400*40%=23760

3.OUT PUT METHOD:-

YEAR1 =[cost - scrap value/ total units ]* no of units

[66000-6000/100000]*15000=9000

year 2= [66000-6000-9000/100000]*24000=12240

4. sum of years digits method :-

years 5= 1+2+3+4+5=15

year 1:-[66000-6000/15]*5=20000

year 2 = [66000-6000/15]*4=16000