On 1 January 2021, Machi Ltd. purchased a machine for $165,000. The machine had a useful life of 5 years and a residual value of $5,000. Straight-line depreciation is used. The machine is to be disposed of on 1 July 2025. Machi Ltd. balances its accounts on 31 December.

Required:

Part A

Prepare journal entries for the following transactions/scenarios for year 2025.

The journal entry to record depreciation prior to the disposal. Ignore GST. (2 marks)

The journal entry to record the disposal of the machine if the machine and cash of $120 000 are exchanged for a new machine with a cash price of $140 000. Ignore GST. (2 marks)

The journal entry to record the disposal of the machine if the machine was completely destroyed by fire and cash of $45 000 was received from the insurance company. Ignore GST. (2 marks)

Considering GST, the journal entry to record the disposal of the machine if the machine is sold for $80 000 (GST inclusive) cash. Round all figures to whole numbers. (2 marks)

Part B

Explain the considerations an accountant should make when recording a major repair of an asset. Journal entries are not required. (2 marks)