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Question Four Fixed Assets and Depreciation 18 MARKS Explain the following statement. "Depreciation is the process of cost allocation, not market valuation." Incorporate in your answer a detailed description of the cost allocation concept. 1. (5 marks) 2. On 1 April 2014 Copiers Limited purchased a computer controlled paper cutting machine for $400,000. It costs $3,000 to install and $2,000 for transportation to the factory. (Once the machine was going, staffing costs are $2,500 and the machine uses $250 of oil a week.) The machine had an estimated useful life of eight years and a residual value of $20,000. All amounts are exclusive of GST. Required Calculate the Total Cost of this machine. (1.5 marks) a. b. The machine was depreciated by the straight-line method for the first two years. What was its book value at 31 March 2016? (You must calculate depreciation for the first two years. Show your workings) (1.5 marks) c. If the company used the diminishing value method instead of the straight- line method, calculate the book value as at 31 March 2016. The diminishing value percentage is 25%. (You must calculate depreciation for the first two years. Show your workings) (3 marks) d. Assuming that the diminishing value method has been used (as per c. above), prepare an extract of the Balance Sheet as at 31 March 2016 for Copiers Limited to show how this machine would be disclosed in the P,P & E section. (3 marks) NOTE: The word "extract" means the section of the Balance Sheet that shows the information on this machine. A car was bought for $35,000 (exclusive of GST) on 1 April 2015. It was sold on 31 December 2016 for $17,000 (exclusive of GST). Find the profit or loss on the sale where the straight-line method of depreciation was used. Life is 3 1/3 years (use 3.3333 years in your calculations). Assume balance date is 31 March. Show workings. Ignore any GST 3. (4 marks)

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