A new office equipment was purchased for Rs. 500 000 on 2021.07.01. This amount was erroneouslyrecorded in other administrative expenses. Life time of this equipment was estimated as 5 years andthere is no residual value.
Question
A new office equipment was purchased for Rs. 500 000 on 2021.07.01. This amount was erroneouslyrecorded in other administrative expenses. Life time of this equipment was estimated as 5 years andthere is no residual value.
Solution
It seems like you haven't asked a specific question related to the information provided. However, I can infer that you might be asking about how to correct the accounting error and how to calculate the depreciation of the equipment. Here's how you can do it:
Step 1: Correct the Accounting Error The purchase of office equipment is a capital expenditure and should be recorded as an asset, not an expense. To correct this, you need to debit the Office Equipment account for Rs. 500,000 and credit the Administrative Expenses account for the same amount. This will increase your assets and decrease your expenses.
Step 2: Calculate Depreciation Since the equipment has a useful life of 5 years and no residual value, you can use the straight-line method to calculate depreciation. This method spreads the cost of the asset evenly over its useful life.
Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life Depreciation Expense = (Rs. 500,000 - Rs. 0) / 5 Depreciation Expense = Rs. 100,000 per year
So, every year for the next 5 years, you will record a depreciation expense of Rs. 100,000. This is done by debiting the Depreciation Expense account and crediting the Accumulated Depreciation account. Over time, this will reduce the carrying amount of the asset on your balance sheet.
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