Assignment:
Fresh Bakery Ltd purchased an oven for $110,000 primarily for baking commercial quantities of rolls in its bakery business. The management estimates that the oven purchased will be technologically obsolete in 5 years, at which time it will have a residual value of $11,000. The oven will bake 600,000 rolls in the first year, decreasing by 50,000 rolls during each of the next 4 years (i.e., in the fifth year the oven will be baking in mass 400,000 rolls).
REQUIRED
(a) For each of three depreciation methods (straight-line, units-of-production, and reducing balance), prepare a depreciation schedule from acquisition showing the following balances each year for the 5 years: asset cost, depreciation expense, accumulated depreciation and asset carrying amount. For the reducing balance method, use a depreciation rate based on 35%.
(b) Discuss the major considerations when choosing between using straight line, units of production and reducing balance methods of depreciation under accrual accounting (60 words)
(c) Depreciation ensures there will be sufficient cash resources to replace the asset once it has reached its useful life and requires replacement - discuss (40 words limit)
(d) With reference to the question, assuming at the end of the 5 th year the asset was sold for a cash sum of $15,000 and had previously been depreciated under straight line method of depreciation. Describe with reference to the accounting equation Assets = Liabilities +Owners Equity the impact of such a sale transaction on the equation.
OR QUESTION 5 (b)
Research Review (800 words limit - excluding references/ including citations)
Choose to review an article of choice published in a business magazine, journal or newspaper in the last 2 years
- summarise the main message in the article / relevance of the article to the course content including its significance and relevance in today business world
- highlighting an understanding of course content concepts as they relate to the article under review
- highlighting a deeper understanding of related concepts as reflected by / use of additional reading / references in the area
- Presentation, referencing, grammar