11.15 (B) marks: 35 minutes) Alexander Engineering is a small factory that manufactures machinery. Alexander Engineering is registered for value added tax and the VAT rate is 15%. During the financial year ended 31 October 2008, the following transactions took place with regards to the factory's property, plant and equipment: 1.The depreciation methods and the opening balances at 1 November 2007 for the property, plant and equipment accounts were as follows: Factory buildings 2000000 Accumulated Cost depreciation Method of depreciation 550 000 5% might ne Machinery Office equipment 30000 600000 10.000 20% Straight Sine (Ni residual s 218 750 25% ding (M 2.On 31 May 2008, a spark set off a fire in the factory. Luckily there was only superficial damage to the factory buildings and other assets. The machinery of the company was however damaged beyond repair. A cheque for R456 000 was received on 30 June from the insurance company in settlement of the claim. 3.Machine D was purchased for R287 500 (including VAT) on 1 July. This machine was paid in cash and will be depreciated over 8 years on the straight-line basis. 4. Thereafter they manufactured a piece of machinery (Machine E) they required for their business. The following expenses were incurred and where applicable paid for in cash: Cost of spare parts (VAT Inclusive) 172 500 Internal labour on the project (Already included in salaries and wages) 30 000 Payment to construction company for alterations to the building to accommodate new machine (VAT exclusive) 50 000 New air conditioning system for new machine (VAT Inclusive) 17 250 Cost of testing the new machine (VAT Exclusive) 25 000 Architect's fees (Non-VAT vendor) 5 000 The machine was brought into use on 30 September 2008. It has an expected useful life of five years and a residual value of R15 000. It will be depreciated using the straight-line basis. Required a) Record the transactions pertaining to the property, plant and equipment for the financial year ended 31 October 2008 in the general journal of the company. Narrations are not required (23 marks) b) A machine was built for a client at a cost of R250 000 and was on hand at the end of the year. The bookkeeper is unsure if it should be classified as inventory or property, plant and equipment in the financial statements. Discuss each of these types of asset briefly and why the machine would or would not qualify in that category. (6 marks) Alexander Engineering is a small factory that manufactures machinery. Alexander Engineering is registered for value added tax and the VAT rate is 15%. During the financial year ended 31 October 2008, the following transactions took place with regards to the factory's property, plant and equipment: 1.The depreciation methods and the opening balances at 1 November 2007 for the property, plant and equipment accounts were as follows: Accumulated Cost depreciation Method of depreciation Factory buildings 2 000 000 550 000 5% Straight line (Nil residual value) Machinery 600 000 480 000 Office equipment 30 000 10 000 20% Straight line (Nil residual value) 20% Straight line (Nil residual value) Vehicles 600 000 218 750 25% diminishing balance (Nil residual value) 2.On 31 May 2008, a spark set off a fire in the factory. Luckily there was only superficial damage to the factory buildings and other assets. The machinery of the company was however damaged beyond repair. A cheque for R456 000 was received on 30 June from the insurance company in settlement of the claim. 3.Machine D was purchased for R287 500 (including VAT) on 1 July. This machine was paid in cash and will be depreciated over 8 years on the straight-line basis. 4.Thereafter they manufactured a piece of machinery (Machine E) they required for their business. The following expenses were incurred and where applicable paid for in cash: Cost of spare parts (VAT Inclusive) 172 500 Internal labour on the project (Already included in salaries and wages) 30 000 Payment to construction company for alterations to the building to accommodate new machine (VAT exclusive) 50 000 New air conditioning system for new machine (VAT Inclusive) 17 250 Cost of testing the new machine (VAT Exclusive) 25 000 Architect's fees (Non-VAT vendor) 5 000 The machine was brought into use on 30 September 2008. It has an expected useful life of five years and a residual value of R15 000. It will be depreciated using the straight-line bogia Required a) Record the transactions pertaining to the property, plant and equipment for the financial year ended 31 October 2008 in the general journal of the company. Narrations are not required (23 marks) b) A machine was built for a client at a cost of R250 000 and was on hand at the end of the year. The bookkeeper is unsure if it should be classified as inventory or property, plant and equipment in the financial statements. Discuss each of these types of asset briefly and why the machine would or would not qualify in that category. (6 marks)