Complete depreciation schedules for Kenworth freight truck

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Reference no: EM133022630

Question - On 1st November 20X4 Pasture Manufacturing Ltd purchased a Kenworth Freight truck which gave rise to the following general journal entry (narration deleted).

Date

 

DR

CR

20X4

Truck

880,000

 

Nov 1

Cash at Bank

 

130,000

 

Loan Payable

 

750,000

Additional information:

Useful life of the Truck is 8 years or 8,000,000 kilometres. Straight line depreciation rate = 12.5%pa and reducing balance depreciation rate = 22.05%pa.

Residual value is $120,000

The estimated kilometres to be travelled in the first five financial years are:

Financial Year ending 30th June

Number of estimated units

20X5

580,000

20X6

880,000

20X7

800,000

20X8

795,000

20X9

670,000

Required -

a) Complete the depreciation schedules below for the Kenworth freight truck for both of the units of production and reducing balance methods for the years ended 30th June 20X5, 20X6 and 20X7.

b) In addition to the units of production and the reducing balance methods of depreciation there is also the straight line method. Describe what the effects of each method are on depreciation expense and how the company decides on which of the three methods to adopt?

Reference no: EM133022630

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