Question
PART A Pepper Ltd purchased a large machinery with an invoice price of $175,000 on 1 August 2012. Other costs incurred at the time of
PART A
Pepper Ltd purchased a large machinery with an invoice price of $175,000 on 1 August 2012. Other costs incurred at the time of purchase were as follows:
- Delivery & installation costs, $3,000
- Insurance during delivery, $500
- Initial testing of the machinery, $750
- One-year fire insurance policy covering the machinery, $1,500.
The machinery is estimated to have zero residual value at the end of its 8-year useful life. The machinery was fully depreciated on 31 July 2020. Pepper sold the machinery for $2,000 cash on 1 August 2020.
REQUIRED:
- Determine the acquisition cost of machinery on 1 August 2012. [Show your working by identifying each element of the acquisition cost that needs to be considered to determine the acquisition cost of the machine]
- Prepare the general journal entry to record the disposal of the machinery on 1 August 2020. (Narration is not required)
PART B
On 1 July 2020, ABT Ltd had the following two equity accounts on its Balance sheet:
Share Capital (6,000,000 shares) $30,000,000
Retained Earnings $17,000,000
The following events and transactions relate to ABT Ltd for the financial year ending 30 June 2021.
31/12/2020 | ABT Ltd has been operating successfully and the current market price is $12 per share. On 31 December 2020, the company declared a 5% share dividend and $12 was the value assigned to the shares. The share dividend was distributed in January 2021. |
20/01/2021 | Issued the shares for the share dividend. |
30/06/2021 | For the financial year ending 30 June 2021, ABT Ltd recorded a profit after income tax of $15,000,000. On 30 June 2021, $2,000,000 was transferred from Retained Earnings to General Reserve to provide for future business expansion. |
30/06/2021 | Declared a final cash dividend of 30 cents per share. |
REQUIRED:
- Prepare the general journal entries relating to the share dividend on 31/12/2020 and 20/01/2021. [Narrations are not required].
- Prepare the Equity section of the Balance Sheet of ABT Ltd as at 30 June 2021.
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