On 25 September 2020, Ebonie Ltd purchased a second-hand truck for $66 000. Stamp duty amounted to $600. The truck dealer also fitted four new tyres at a cost of $1200 and spray painted the business logo onto the truck doors at a cost of $900. All amounts were paid in cash. The truck was expected to have a useful life of 3 years and a residual value of $12 000.

On 23 April 20212, the truck was traded in on a new truck costing $91 000. An amount of $17 000 was allowed for the trade-in of the old truck and the balance paid in cash. The new truck was expected to have a useful life of 7 years and a residual value of $7000.

Ebonie Ltd depreciates trucks using the straight-line method and records depreciation to the nearest month. The end of the reporting period is 30 June.

Required:

a) Prepare general journal entries (round all amounts to the nearest dollar) to record the above transactions and to record depreciation necessary for the years ended 30 June 2016 and 2017. [12 marks]

b) Justify the value you recognised as the cost of the second-hand truck, purchased on 25 September 2020 by reference to the requirements of AASB 116.

[3 marks]