Believing that it will be good for future business prospects, Point Lonsdale Ltd gives Ocean Grove Ltd some computer machinery at no cost. At the time, Ocean Grove Ltd is considering entering into a long-term agreement to acquire raw materials from Point Lonsdale. Just before the asset transfer, the computer machinery has a fair value of $120 000 and a carrying amount of $100 000 (cost of $170 000; accumulated depreciation of $70 000).

REQUIRED

a. Provide the journal entries in the books of Point Lonsdale Ltd to account for the asset transfer.

b. Can the computer machinery be recognised by Ocean Grove Ltd? Do you think that applying the principles and prescriptions of AASB 116 results in a meaningful statement of assets?