Calculate the accumulated depreciation balance

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Question - Adam's mowing Limited purchased a group of new lawnmowers for $24,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five years and to have $600 residual value at that point. The entity's business plan projects cutting 6,500 lawns over the five years, with per-year projections of 700, 1,300, 1,500, 2,200 and 800 lawns over the five years.

Required -

a) Calculate the Accumulated Depreciation balance at the end of the second year using each of the following depreciation bases. Show your working.

straight-line

diminishing balance (52 per cent rate)

units-of-production.

b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner's question and request.

c) If the 52 per cent reducing balance method is used, accumulated depreciation will be $23,400 at the end of the fifth year. Suppose that, on the first day of the sixth year, all the lawnmowers are sold as junk for $150 cash in total. Ignoring income taxes, calculate the loss on sale that would be recorded that day.

Reference no: EM132989322

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