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Accounting - Case study - Depreciation

Case study - Depreciation

A Pizza Oven is bought on 30 September 2001 for $10 000. It costs a
further $5000 to install. The residual value is estimated at $3000 and the
estimated life is 6 years.

* calculate depreciation for the year ended 30.6.2002 and 30.6.2003 using
both the straight line method and the diminishing balance (25% per annum)

* present these calculations in the general journal

* show the affect on the Profit and Loss statement (extract provided)

* show how an extract may appear in the balance sheet

$
$

Sales

8 000

less Expenses
4 000

+ depreciation of pizza oven

Total expenses

Net profit

$
$

Sales

8 000

less Expenses
4 000

+ depreciation of pizza oven

Total expenses

Net profit

$
$

Sales

8 000

less Expenses
4 000

+ depreciation of pizza oven

Total expenses

Net profit

$
$

Sales

8 000

less Expenses
4 000

+ depreciation of pizza oven

Total expenses

Net profit

A related theory question would ask students to explain the relative
effects on profit of the selection of the depreciation method.

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