Q No 3 (9)

(A) A company bought machine on July 1, 1998 at a list price of Rs.80, 000. Trade discount availed 10%. Credit term is 2.5/10, n/45. Company paid following expenses: (05)

Installation charges Rs.5000 Foundation charges Rs.12500 Trial run cost Rs. 2000

The estimated life of the machine is expected to be 6 years and expected scrap value is Rs.9500.

Required: 1) Compute total cost of the machine (2)

2. Compute depreciation for the year 1998-2003 under following methods using schedule:

• Straight line method (1)
• MACRS method (1)
• Double declining balance method (1)

B) Walker Motel recently purchased new exercise equipment for its exercise room. The following information refers to the purchase and installation of this equipment: (4)

1. The list price of the equipment was $40,000; however, Walker qualified for a special discount of $5,000. It paid $10,000 cash for the equipment, and issued a three-month, 12 percent note payable for the remaining balance. The note, plus accrued interest charges of $750, was paid promptly at the maturity date.

2. In addition to the amounts described in 1, Walker paid sales taxes of $2,100 at the date of purchase.

3. Freight charges for delivery of the equipment totaled $600.

4. Installation and training costs related to the equipment amounted to $900.

5. During installation, one of the pieces of equipment was accidentally damaged by an employee.

It cost the motel $400 to repair this damage.

6. As soon as the equipment was installed, the motel paid $3,200 to print brochures featuring the exercise rooms new, state-of-the-art exercise facilities.

Instructions

a. In one sentence, make a general statement summarizing the nature of expenditures that qualify for inclusion in the cost of plant assets such as exercise equipment.

b. For each of the six numbered paragraphs, indicate which items should be included by Walker in the total cost debited to its Equipment account. Also briefly indicate the proper accounting treatment of those items that are not included in the cost of the equipment.

c. Compute the total cost debited to the motels Equipment account.

d. Prepare a journal entry at the end of the current year to record depreciation on the exercise equipment. Walker Motel will depreciate this equipment by the straight-line method over an estimated useful life of five years. Assume a zero residual value.