In July 2011, Harry purchases a used Mini-Cooper car for $12,000. He spends $2,000 fixing a giant hot dog on top of the roof of the car, $500 for re-painting & adding his logo to the side of the car, $1,200 for stamp duty and $1,000 in optional insurance renewable every year. He expects to drive the car another 70,000km over the next 4 years.

To attract attention when driving around he plans to play the song “Who let the dogs out”. He engages a lawyer to purchase the copyright, costing $1,000 for 5 years. He pays his lawyer a fee of $200 for her legal services and plays the song from 1 January 2012. Without the legal fees, the copyright would not have been able to be purchased.

It is also time to replace the motor bike he uses for take-away deliveries. The original cost of the bike was $10,000 with an expected residual value of $3,000. He originally planned to drive the bike 70,000km and depreciate it according to the kilometers driven each year. When trading it in on 30 September 2011 he had driven 5,000km in the current financial year. The new bike costs $15,000, and the dealer allows him to trade in the old motor bike for $4,000. Harry will therefore only pay the difference of $11,000.

(a) What is the maximum cost that can be included as part of the car’s purchase cost, as allowed by the accounting standards? Make the appropriate journal entries) for all costs paid in July 2011 relating to the car.

(b) Journalise the purchase of the copyright, and calculate and journalise its amortisation for the current year ending 30 June 2012.

(c) Journalise the disposal of the old motor bike & purchase of the new one. Show all workings for all your calculations.