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:

1. 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]

2. Prepare the general journal entry to record the disposal of the machinery on 1 August 2020. (Narration is not required)