On 1 July 2014, ABC Ltd purchased two identical new machines at a total cost of $700,000 (ignore GST). It was estimated that the machines would have a useful life of 10 years and a residual value of $50,000 each. ABC Ltd uses the straight-line method of depreciation for all of its equipment. The company’s end of reporting period is 30 June.
1. Record the purchase of the trucks on 1 July 2014. (1 marks)
2. Record the depreciation expense on the trucks for 2019. (1 marks)
3. Assume that on 30 June 2020 the company revalued the machines upwards by $80,000 each and assessed that the machines would last 6 more years instead of 4 but that the residual value would be $40,000 for each. Record all journal entries for the trucks in 2020 including depreciation at financial year-end. (3 marks)
4. Make the necessary entries to record the sale of one of the machines on 1 July 2020. The machine was sold for $200,000 (ignore GST). (Assume that the two machines had the same carrying amount, which equalled their fair values at this date.) (2 marks)
5. How much depreciation expense would be recorded on the second machine for the year ended 30 June 2025 if its residual value was $50,000 by 30 June 2025? Why? (3 marks)
(Adapted from Hoggett et al. 2015, Financial Accounting, 9 thedition, p. 670)
Critical Thinking Question :
Consider the concept of an asset and an expense provided in the currentConceptual Framework. Provide a discussion of the IASB’s and FASB’s alternative suggestion for amending the definition of an asset. What implications does an amendment of the definition of an asset have for the recognition of expenses?
ANALYSE: (30-50 words)
Identify the issue and why it matters. Determine what you need to find out. (30-50 words)
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