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KiRa [710]
3 years ago
7

Lomani Ltd acquired two new machines for cash on 1 January 2017. The cost of machine A was $400 000, plus GST, and of machine B,

$600 000, plus GST. Each machine was expected to have a useful life of 10 years, and residual values were estimated at $20 000 for machine A and $50 000 for machine B. Because of technological advances, Lomani Ltd decided to replace machine A. It traded in machine A on 31 March 2021 for a new machine, C, which cost $420 000. A $200 000, plus GST, trade-in was allowed for machine A, and the balance of machine C’s cost was paid in cash. Machine C was expected to have a useful life of 8 years and a residual value of $20 000. On 2 July 2021, extensive repairs were carried out on machine B for $66 000 cash. Lomani Ltd expected these repairs to extend machine B’s useful life by 4 years and it revised machine B’s estimated residual value to $19 500. Machine B was eventually sold on 1 April 2023 for $300 000, plus GST, cash. On 1 July 2023, Lomani Ltd decided to use the revaluation model for valuation of Machine C. The fair value of Machine C was assessed to be $220 000 and the future useful life was estimated to be 5 years, residual value remains the same. Lomani Ltd uses the straight-line depreciation method, recording depreciation to the nearest whole month. The end of the reporting period is 30 June. Required: Prepare general journal entries to record the above transactions and depreciation journal entries required at the end of each reporting period up to 30 June 2024. Required: Prepare general journal entries to record the above transactions and depreciation journal entries required at the end of each reporting period up to 30 June 2024
Business
1 answer:
cricket20 [7]3 years ago
6 0

Answer:

2017

Machine A (Dr.) $400,000

Machine B (Dr.) $600,000

Cash (Cr.) $1,000,000

2018

Depreciation Expense (Dr.) $93,000

Accumulated Depreciation (Cr.) $93,000

2019

Depreciation Expense (Dr.) $93,000

Accumulated Depreciation (Cr.) $186,000

2020

Depreciation Expense (Dr.) $93,000

Accumulated Depreciation (Cr.) $279,000

2021

Machine C  (Dr.) $420,000

Machine A (Cr.) $200,000

Cash (Cr.) $220,000

(To record trade in of machine A)

Repairs expense Machine B (Dr.) $66,000

Cash (Cr.) $66,000

(To record repairs of machine B)

2022

Depreciation Expense (Dr.) $79,450

Accumulated Depreciation (Cr.) $358,450

2023

Cash (Dr.) $300,000

Machine B (Cr.) $284,550

Gain on selling (Cr.) $15,450

Explanation:

Straight line depreciation recognize an assets carrying amount evenly over its useful life.

Straight line Depreciation = (Cost - Estimated Residual Value) / useful life

Depreciation expense for Machine A:

($400,000 - $20,000) / 10 years

= $38,000

Depreciation expense for Machine B:

($600,000 - $50,000) / 10 years

= $55,000

Depreciation expense for Machine C:

($420,000 - $20,000) / 8 years

= $50,000

Revised Depreciation of Machine B:

($314,000 -  $19,500) / 10 years

= $29,450

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