04 Jul 2024

Posted on:

04 Jul 2024

0

# course challenge build P&L and Balance sheet

in the first case study under transaction section 2nd point : it acquires a fixed asset of \$8000000 and paid in cash. the asset have a salvage value of \$ 5,000,000 and an estimated useful life of 15 years. At the beginning of the year the company had a total of \$ 150,000,000 in fixed asset, which depreciated at a rate of 10% annually. fixed asset credit item wont be \$200000? but you have written \$20000000?

Instructor
Posted on:

04 Jul 2024

0

Hello!

Thanks for reaching out. Transaction 2 has two parts.

In the first part, you will record depreciation expense on existing fixed assets at the beginning of the period. This depreciation expense will be 15,000,000 (150,000,000 x 10%).

We will then record this depreciation expense of \$15Mn as follows:

Debit depreciation expense by \$15Mn
Credit Accumulated depreciation by \$15Mn.

In the second part, you will first record purchase of fixed assets on cash i.e. Debit Fixed assets by \$80Mn and credit Cash by \$80Mn. Then we will calculate annual depreciation expense for purchased fixed asset keeping in view its salvage value of \$5Mn. It would come down to annual depreciation expense of \$5Mn i.e. (\$80Mn - \$5Mn) / 15 (for years of useful life).

We will then record this depreciation expense of \$5Mn as follows:

Debit depreciation expense by \$5Mn
Credit Accumulated depreciation by \$5Mn.

Hope this helps!

Best,

Ned