Question

‘X’ Ltd. purchased two new machines for cash on 1 January 2018. Machine A cost $4000...

‘X’ Ltd. purchased two new machines for cash on 1 January 2018. Machine A cost $4000 and Machine B cost $10000. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $200 for Machine A and $500 for Machine B.

On 30 June 2019, ‘X’ Ltd. adopted the revaluation model to account for the class of machinery. The fair values of Machine A and Machine B were determined to be $3200 and $9000 respectively on that date. The useful life and residual value of Machine A were reassessed to 8 years and $150. The useful life and residual value of Machine B were reassessed to 8 years and $400.

On 2 January 2020, extensive repairs were carried out on Machine B for $6600 cash. ‘X’ Ltd. expected these repairs to extend Machine B’s useful life by 3.5 years, and it revised Machine B’s estimated residual value to $945.

‘X’ Ltd. decided to replace Machine A. It traded in Machine A on 31 March 2020 for new Machine C, which cost $6400. A $2800 trade-in was allowed for Machine A, and the balance of Machine C’s cost was paid in cash. Transport and installation costs of $95 were incurred in respect to Machine C. Machine C was expected to have a useful life of 8 years and a residual value of $800.

‘X’ Ltd. uses the straight-line depreciation method, recording depreciation to the nearest month and the nearest dollar. The end of its reporting period is 30 June.

On 30 June 2020, fair values were determined to be $14000 and $6500 for Machines B and C respectively.

Required:

Prepare general journal entries to record the above transactions and the depreciation journal entries required at the end of each reporting period up to 30 June 2020. Please show all the required calculations as note at the end of your answer.

Homework Answers

Answer #1
Date Particulars Amount $ Amount $
01.01.2018 Machine A   Dr 4000
Machine B   Dr 10000
To Cash 14000
( being machineA & B purchased for cash)
30.06.2018 Depreciation A/c                         Dr 665
   To Machine A 190
To Machine B 475
( being depreciation charged)
30.06.2018 Profit & loss account                  Dr 665
     To Depreciation 665
( being depreciation accounted)
30.06.19 Depreciation A/c                         Dr 1330
   To Machine A 380
To Machine B 950
( being depreciation charged)
30.06.19 Profit & loss account                  Dr 1330
     To Depreciation 1330
( being depreciation accounted)
30.06.19 Loss on Revaluation                               Dr 230
   To Machine A 230
( being loss acounted on revaluation)
30.06.19 Machine B                                       Dr 425
   To Gain on Revaluation 425
( being gain accounted on revaluation)
02.01.20 Repairs on Machine B A/c                               Dr 6600
   To cash 6600
( being repairs carried out)
31.03.20 Depreciation A/c Dr 95.31
To Machine A 95.31
( being depreciation charged)
31.03.20 Profit & Loss A/c    Dr 95.3125
   To depreciation 95.3125
( being depreciation accounted)
31.03.20 Machine C A/c   Dr 6495
To Machine A 2800
    To cash 3600
To Installation and transportaion cost 95
( being Machine C purchased)
31.03.20 Profit & Loss A/c    Dr 114.06
   To Loss on sale of Machine A 114.06
( being loss accounted)
30.06.20 Depreciation A/c                         Dr 819.67
   To Machine C 177.97
To Machine B 641.70
( being depreciation charged)
30.06.20 Profit & loss account                  Dr 819.67
     To Depreciation 819.67
( being depreciation accounted)
30.06.20 Loss on Revaluation               Dr 420.80
To Machine B 420.80
( being loss on revaluation)
30.06.20 Machine C                                   Dr 182.97
   To gain in revaluation 182.97
( being gain on revaluation)
Machine 01.01.18 Salvage value Years Depreciation
A 4000 200 10 380
B 10000 500 10 950
Depreciation = (purchase value- salvage value)/ no of years
Machine 01.01.18 Depreciation 30.06.18 01.07.18 Depreciation (07.18-30.06.19) 30.06.19 Revaluation Gain/ (Loss)
A 4000 190 3810 380 3430 3200 -230
B 10000 475 9525 950 8575 9000 425
Machine 01.07.19 Salvage value Years Depreciation till dec 19 01.01.20 02.01.20 Total value useful life increases Total useful life residual value Depreciation dep 30.06.20
A 3200 150 8 190.63 3009.375 3009.38 7.5 0
B 9000 400 8 537.50 8462.5 6600 15062.5 3.5 11 945 1283.41 641.70 14420.80
Machine 02.01.20 Depn till 31 March 20 Net value exchange of Machine C Loss on exchange
A 3009.38 95.31 2914.06 2800 114.06
31.03.20 salvage value Years depreciation
C 6495 800 8 711.88
Machine 31.03.20 depn till 30.06.20 01.07.20 Revaluation Gain/ (Loss)
C 6495 177.97 6317.03 6500 182.97
B 641.70 14420.80 14000 -420.80
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