Woodlawn Engineering Case Study

Topics: Depreciation, Balance sheet, Asset Pages: 5 (1247 words) Published: February 13, 2012
To: Agnes Currie, CFO
From: Group 28
Date: Monday November 21, 2011

Subject: Long-lived Assets

In response to you requested investigation regarding the property, equipment and intangible asset accounts, we have completed adjustments to the necessary accounts. During the year new office equipment was purchased at a cost of $2,697.50. We will calculate the difference between the accumulated Depreciation of office equipment balance and the office equipment account. We will then include the new office equipment to the balance, and then multiply the new balance by 20 percent using the declining-balance basis:

NOTE (a)
Office equipment
DR. Depreciation Expense$4,740
CR. Accumulated Office Equipment Depreciation$4,740

($85,829.89 – $64,827.32) + $2,697.50
$21,002.57 + $2,697.50 = $23,700.07
Using the declining-balance basis at a rate of 20% per year gives us $4,740

The furniture and fixtures accounts will be relative to the office equipment journal entries. The difference between the accumulated depreciation of furniture and fixtures balance and the furniture and fixtures account will be considered. This will give us our net book value of our furniture and fixtures. We will then include the new purchases of furniture and fixtures of $4614.41 and multiply the sum of the net book value to the new purchases. Finally, this new value will be multiplied by 20 percent using the declining-balance basis

NOTE (b)
Furniture and Fixtures
DR. Depreciation Expense$25,563
CR. Accumulated Depreciation – Furniture and fixtures $25,563

$346,971.37 (2009) - $223,768.15 = $123,203.22 (Net Book Value) $123,203.22 + $4,614.41 = $127,817.63 @ 20% = $25,563.26

The old business information system will be taken into consideration as we had received a loss due to harmful materials contained in the old materials. The journal entry for our loss will be as follows:

NOTE (c)
Business Information Systems
DR. Loss on Disposal of Capital Assets$2,500
CR. Repairs and Maintenance Expense $2,500

Because the old information system had been acquired in 2006, accumulated depreciation will still be taken into account between 2006 and 2009:

DR. Loss on Disposal of Capital Assets$33,916
DR. Accumulated Business Information Systems Depreciation$107,341 CR. Business Information Systems$141,257

Referring to Exhibit 1, it is shown that the current loss on disposal of capital assets is $33,916. Our current value ($33,916) is simply deducted from the old business systems cost ($141,257) to produce the difference between our book and current value.

Exhibit 1
| Aug. 31 2006| Aug. 31 2007| Aug. 31 2008| Aug. 31 2009| Beginning Amount| 141,256.86 | 98,879.80 | 69,215.86 | 48,451.10 | Depreciation| 42,377.06 | 29,663.94 | 20,764.76 | 14,535.33 | Net | 98,879.80 | 69,215.86 | 48,451.10 | 33,915.77 |

DR. Depreciation Expense*$13,564
CR. Accumulated Business Information Systems Depreciation*$13,564

$231,700.93 - $141,256.84 = $90,444.09
$164,216.14 - $107,341.09 = $56,875.05
$90,444.09 - $56,875.05 = $33,569.04
$33,569.04 + $5,145.95 + 6,500 = $45,214.99
*Using the declining-balance basis at a rate of 30% per year gives us $13,564.50

The leasehold improvements will be depreciated using the straight-line basis over five years. Costs incurred in 2008 were $86,688.78 and was divided b its 10 years of useful life to receive an accumulated depreciation of $8,668.88. In 2009 $86,688.78 will be subtracted by $8,688.88, and the 2009 new cost of $21,455.15 will be included in the new expense. This new balance will then be divided by the remaining useful life of 9 years. In 2010, additional lease space was acquired and increased the useful life by 3 years. Therefore the incurred balance of $99,475.05 between 2008 and 2009 will be subtracted by its...
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