On 1 May 2015, your company acquired a machine at a cost of $300,000. This machine has an expected a useful life of 20 years in normal conditions, and a residual amount of $10,000. The financial year ends on 30thJune every year. Assume the tax rate is 30%. For tax purposes the asset is depreciated at 10% per annum with no residual value.

i)Assume that the managers decided to use the machine more intensively from 1 January to June of 2017. This intensity reduced the useful life of the asset by 20%. Prepare the relevant journal entries for the year ended on 30 June 2017.(5 marks)

ii)On 1 April 2018, assume an operator of this machine broke an important part. On that occasion, your managers hired expects to provide the below information

: Market A Market B

Disposal costs $ 3,000 $ 15,000

Transaction costs $1,000 $ 500

Transport costs $800 $2,000

Expected selling price $ 220,000 $ 280,000

Expected cash flow $25,000 $ 40,000

Discount rate (monthly) 1.08% 1.02%

Market A is the most commonly used by the company for identical machines. However, transactions are infrequent and sometimes the users are unreliable (fake profiles). Market B has a sentimental attachment as the companys directors usually go there to celebrate their annual achievements. This market has the most reliable users for similar machines traded on ongoing basis.

Required:

a. Prepare the relevant journal entries for the financial year ended on 30 June 2018.(5marks)

b. Based on the previous question, state any assumptions you made.(5marks)

iii)On 30 June 2018, your CEO was upset with the current figures (an indication of an accounting loss). In a private conversation with your direct manager, she asked you to reconsider any assumption you made related to that machine.

a. Please provide two suggestions on how to make these figures look better.(5marks)

b. Discuss any ethical issues concerning this scenario including your suggestions on part (a)?