Question

Hi Could you break down this practice question please.

Fantastic Tiling Corporation is a tiling manufacturer. Jon Tiler, the founder of the company, recently approved the purchase of a new truck to support the company’s expected growing business. The company’s purchasing manager quickly acquires a truck advertised at a price of $60,000 and receives a 10% discount. She also had to pay $1,500 to customise the loading platform, $500 registration for the truck being delivered from Perth $1,700 for vehicle related state stamp duty costs, $1,500 for non-compulsory car insurance costs. Fantastic Tiling expects to use the truck for 4 years, and estimates that it will have a salvage value of $3,000 at the end of its 4 year use. She paid cash for all the above costs. Of the three possible depreciation methods (straight line, reducing balance and units of production depreciation methods), the accounting department determines that the straight line method is the best method to use for depreciating the truck. The truck will travel approximately 60,000 km’s over the 4 years estimated life. The company is also replacing the machine used for glazing. The old machine was originally recorded at a cost of $110,000 and depreciated over 10 years straight line with no salvage value. The statement of financial position shows a book value net of accumulated depreciation at the beginning of the financial year of $44,000. The cost of the new machine is $150,000 and Jon negotiated to trade in the old machine for $30,000 and pays cash for the balance.

Fantastic Tiling Corporation is a tiling manufacturer. Jon Tiler, the founder of the company, recently approved the purchase of a new truck to support the company’s expected growing business. The company’s purchasing manager quickly acquires a truck advertised at a price of $60,000 and receives a 10% discount. She also had to pay $1,500 to customise the loading platform, $500 registration for the truck being delivered from Perth $1,700 for vehicle related state stamp duty costs, $1,500 for non-compulsory car insurance costs. Fantastic Tiling expects to use the truck for 4 years, and estimates that it will have a salvage value of $3,000 at the end of its 4 year use. She paid cash for all the above costs. Of the three possible depreciation methods (straight line, reducing balance and units of production depreciation methods), the accounting department determines that the straight line method is the best method to use for depreciating the truck. The truck will travel approximately 60,000 km’s over the 4 years estimated life. The company is also replacing the machine used for glazing. The old machine was originally recorded at a cost of $110,000 and depreciated over 10 years straight line with no salvage value. The statement of financial position shows a book value net of accumulated depreciation at the beginning of the financial year of $44,000. The cost of the new machine is $150,000 and Jon negotiated to trade in the old machine for $30,000 and pays cash for the balance.

Jon also decides to re-value the land of his factory to $1,500,000. This is the first time Jon is re-valuing the land which had an original cost of 2,000,000. Journalise the entry necessary

Answer 1

For Purchase of Truck

Truck A/c Dr 57700

Insurance Expense Dr 1500

To Cash 59200

(Insurance expense were not added beacuse it is not necessary to bring the truck on present condition and location)

At the end of Year

P& l Dr 1500

To insurance expense 1500

Calculation of Depreciation p.a.

(57700-3000)/4 =13675

For Exchange of Machine

New Machine Dr 150000

Loss on Exchange Dr 14000

To old Machine 44000

To cash 120000

For Revaluation Loss on Land

Profit and Loss Dr 500000

To Land 500000