On 1 January 20X1, Mask Production Pte Ltd bought an equipment to produce masks costing $30,000 and paid in cash. It is estimated that the equipment has a useful life of 7 years and a residual value of $3,400. The company uses the straight-line method to account for the depreciation of the equipment.

On 1 January 20X3, the company added a component to the equipment that increased the productivity of the equipment by 20%. The cost of the component was $5,000 and fully paid in cash.

On 1 July 20X3, regular repairs and maintenance costing $300, also fully paid in cash, was done on the equipment to keep it in working order.

Assume that all the transactions were paid in cash, and that there was no change in the estimated useful life of the equipment or the residual value as a result of the subsequent expenditures made on 1 January 20X3 and 1 July 20X3.

The financial year-end of Mask Production Pte Ltd is 31 December. The company makes journal entries as and when transactions take place, but makes period-end adjusting entries only as at 31 December.

Question:

(a) Illustrate the accounting of the above as required under Singapore Financial Reporting Standard 16 Property, Plant and Equipment by recording all necessary journal entries and period-end adjusting entries for the financial years ended 31 December 20X1 and 31 December 20X3. Where necessary, round your answers to the nearest whole number. Dates and journal narratives are to be included. Please show all workings clearly to get full credit.

(b) Explain the accounting treatment for the transaction on 1 January 20X3 and 1 July 20X3.