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Comprehensive - 2
On January 1,2011, Hong Kong International Airport Limousine Co, purchased a used limo at
an acquisition cost of HK$280,000. The vehicle has been depreciated by the straight-line
method using a 4-year service life and a HK$40,000 residual value. The company's fiscal year
ends on December 31.
Instructions
Prepare the journal entry or entries to record the disposal of the limousine assuming that
it was:
(a) Retired and scrapped with no residual value on January 1,2015.
(b) Sold for HK$50,000 on July 1,2014.
Action Plan
Solution to Comprehensive
Units-ofactivity
Effect on
Annual
Depreciation
Constant
amount
Varying
amount
Decliningbalance
Decreasing
amount
Method
Straight-line
Formula
Depreciable cost +
Useful life (in years)
Depreciation cost per
unit X Units of activity
during the year
Book value at beginning
of year X Decliningbalance rate
PLUS
4 Describe the procedure for revising periodic depreciation. Companies make revisions of periodic deprecia-