A piece of equipment for the car plant, purchased for the price of 100,000 lei (net of VAT), with net custom taxes of 10,000 lei, chequing procedures of 10,000 lei (net of VAT), estimated to be used for 10 years, applying the double-decline method (no residual value) is sold by the end of the 4th

Question

A piece of equipment for the car plant, purchased for the price of 100,000 lei (net of VAT), with net custom taxes of 10,000 lei, chequing procedures of 10,000 lei (net of VAT), estimated to be used for 10 years, applying the double-decline method (no residual value) is sold by the end of the 4th year of use for 40,000 lei, plus 19% VAT. Show the effects of the sale in the annual financial statements.

Accepted Answer

Step 1. Computation of the initial cost of the equipment

Net acquisition invoice amount……………………………..100,000 lei (without VAT)
Net transportation cost from invoice ……………………… 10,000 lei (without VAT)
Checking procedures……………………………………… …10,000 lei.
Total initial cost (depreciable cost)………………………120,000 lei.

Step 2. Depreciation, based on a 10-year useful life, applying the doubledecline method

Useful life (0)	Carrying amount (1)	Depreciation expense (2 = 1 * 20%)	Accumulated depreciation (3)	Carrying amount (4 = 1 − 2)
Year 1	120,000 lei	24,000 lei	24,000 lei	96,000 lei
Year 2	96,000 lei	19,200 lei	43,200 lei	76,800 lei
Year 3	76,800 lei	15,360 lei	58,560 lei	61,440 lei
Year 4	61,440 lei	12,288 lei	70,848 lei	49,152 lei
….......

Step 3. The sale effect

Net selling price……………………………………………….40,000 lei
Net carrying amount…………………………………………..49,152 lei
Loss……………………………………………………………..9152 lei
Journal entry

Sale

47,600 lei Other receivables = % 47,600 lei

Revenues from the sale of 40,000 lei

non-current assets 7600 lei

VAT Collected

Disposal of the non-current asset

120,000 lei % = Non-current asset 120,000 lei
70,848 lei Accumulated depreciation

49,152 lei Expenses with the disposal of non-current assets

Effects on the financial statements:

– A loss of 9152 lei in the P&L Account (40,000 lei revenues from sale − 49,152 lei expenses with non-current asset)
– A zero balance sheet value for the non-current asset and a minus 9152 lei in the equity of the business

Question 6.23: A piece of equipment for the car plant, purchased for the pr...

Related Answered Questions

Company ABC purchases equipment from the supplier of 119,000 lei (VAT 19% included). A transportation invoice of 10,000 lei plus 19% VAT is paid to TRANS SRL to deliver the equipment to the ABC location; an amount of 10,000 lei is due for installation procedures and 5000 lei is calculated to be ...

Verified Answer:

An assembly line of a car manufacturer, costing 1 million lei, depreciated straight-line for 10 years and tested for impairment by the end of year 5. At that moment, the fair value of the assembly line is 300,000 lei and the value in use is 390,000 lei. Is the asset impaired? What is the Balance ...

Verified Answer:

A business with an accounting period which runs from January 1st to December 31st, purchases a new intangible asset on April 1st, 20X8, in the amount of 24,000 lei. The expected useful life of the asset is 4 years and its residual value is nil. What should the amortisation charge for 20X8 be? ...

Verified Answer:

MarCom SA purchased a new commercial vehicle with an estimated useful life of five years. The cost of the asset was 22,500 lei (net of VAT) and its residual value after five years was estimated to be 2500 lei. Show the effects of the annual depreciation. ...

Verified Answer:

Verified Answer:

As provided in the pre-accession strategy, one of the ways in which the European Union supports the development of Candidate States is by co-financing projects for small and medium sized enterprises. Assume that on December 5th, 20X3, Construct SRL is awarded a grant of 5000 euros through the EU ...

Verified Answer:

Verified Answer:

Verified Answer:

On January 1st, 20X2, Industrial SA purchases metal processing equipment in the amount of 90,000 lei plus 10,000 lei installation and testing costs. The estimated useful life is 5 years, giving a straight-line percentage of 20%. A residual value of 5000 lei is estimated. Management believes that ...

Verified Answer:

Verified Answer: