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Problem 1: Machinery Original Cost Date of Useful Life Salvage Value Depreciation Purchase Method

The document provides information about Mimi Company's property, plant, and equipment account as of December 31, 2014 including details of four machinery assets: See, Laa, Baa, and Daa. It also describes transactions that occurred in 2015, including the sale of machinery See, a change to the estimated useful life and salvage value of machinery Laa, a change to the remaining useful life of machinery Baa, and the discovery of previously expensed machinery Bee. The audit working paper is required to document the adjusted gain on sale of See, depreciation expense for Laa and Baa in 2015, and total carrying value of remaining machinery as of December 31, 2015.

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88 views

Problem 1: Machinery Original Cost Date of Useful Life Salvage Value Depreciation Purchase Method

The document provides information about Mimi Company's property, plant, and equipment account as of December 31, 2014 including details of four machinery assets: See, Laa, Baa, and Daa. It also describes transactions that occurred in 2015, including the sale of machinery See, a change to the estimated useful life and salvage value of machinery Laa, a change to the remaining useful life of machinery Baa, and the discovery of previously expensed machinery Bee. The audit working paper is required to document the adjusted gain on sale of See, depreciation expense for Laa and Baa in 2015, and total carrying value of remaining machinery as of December 31, 2015.

Uploaded by

leshz zyn
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Problem 1

Your audit of Mimi Company’s property plant and equipment account disclosed the following
data as of December 31, 2014:

Machinery Original Cost Date of Useful life Salvage Value Depreciation


Purchase Method
See ₱700,000 2008 10 years ₱62,000 SYD
Laa 1,020,000 2009 15,000 hours 60,000 Working hours
Baa 1,600,000 2010 15 years 100,000 Straight-line
Daa 1,600,000 2012 10 years 100,000 Double-declining

You have noted that the client’s policy in depreciating asset is to take up no depreciation on
the year of purchase and full year’s depreciation on the year of disposal.

The following is a summary of the transactions in 2015:


A. On May 5, Machinery See was sold for ₱260,000 cash. The company’s bookkeeper
recorded this retirement in the following manner in the cash receipt journal:
Cash 260,000
Machinery 260,000
B. On December 31, 2015, it was ascertained that Machinery Laa had been used for a
cumulative number of hours of 13,100 hours, 2,100 of which was utilized in 2015.
Starting 2015 however, the management revised its estimate of the total life of
Machinery Bee from 15,000 hours to 18,000 hours with the salvage value being
revised to ₱36,000.
C. On December 31, 2015, before computing for depreciation expense on Asset Baa,
the management decided that the asset’s remaining useful life is 10 years from
January 1, 2015.
D. On December 31, 2015, it was discovered that the plant asset purchased in 2014 has
been charged to repairs expense in 2013. The asset costs ₱440,000 and had a useful
life of 10 years with no residual value. Management has decided to use double-
declining balance method for this asset and was referred to as machinery Bee.

Requirement: Create a working paper to document your audit. Make sure that the
following questions are answered by your audit working paper:

1. What is the adjusted gain on sale of Machinery See?


2. What is the depreciation expense on asset Laa for 2015?
3. What is the depreciation expense on asset Baa for 2015?
4. What is the total carrying value f the remaining machineries as of December 31, 2015?

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