PP&E

Question 1

When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods?

Composite Depreciation or Group Depreciation

Answer 1

Both Composite Depreciation & Group Depreciation

Under both the group depreciation and the composite depreciation methods, assets are depreciated on the basis of their average lives. New assets are recorded at cost, and retirements are accounted for by crediting Assets for the original cost of the equipment and debiting Accumulated Depreciation for the original cost less proceeds received; thus, no gain or loss is recognized on disposal. The theoretical justification for this is that some assets will be retired early, while some will be used longer than originally estimated. The same approach is used under both group and composite depreciation–the only difference is that “group depreciation” refers to pools of assets that are similar in nature, whereas “composite” refers to essentially dissimilar assets.

Question 2

A company that uses the periodic inventory system had the following information regarding its inventory:

Description Units Unit price Total
January 1 5 $7 $35
Purchase 1 4 $9 $36
Purchase 2 6 $10 $60
Purchase 3 3 $12 $36
Available 18 $167

The company has 8 units remaining in inventory at year end and uses the FIFO method to account for its inventory. What amount of cost of goods sold should be reported for its year end?

Answer 2

$81.00

Under the FIFO method with a periodic Inventory System, inventory sold is assumed to be from the earliest (First-In) purchases, and ending inventory consists of the most recent (Last-In) purchases.

Description Units Unit price Total
January 1 5 $7 $35
Purchase 1 4 $9 $36
Purchase 2 1 $10 $10
$81