Q2.

Best Ltd Purchased New Machinery with a recommended retail price of $ 6,00,000 on 1 July 2021.

In addition to the purchase price, the company had to pay $25,000 for freight and the insurance and $ 35,000 for the installation fees. The company took advantage of settlement discount of 5% offered by the supplier and paid for the machine within the time. The machinery was expected to be used consistently for 10 years, with the residual value of $ 30,000.

After 5 years, on 1 July 2026, the machinery had major maintenance costing $5,000. At the same time, an extra $1,50,000 was spent on extending the capacity of the machinery to produce more quantity per day. This was expected to extend its entire useful life by 3 years and the residual value remained at $ 30000.

1. Determine the amount at which the machinery would be recorded in the accounts as its acquisition.
2. Explain how the expenditure after five years (i.e 1.7.26) would be treated.
3. Calculate the depreciation expenses on the machinery for the year ended 30^th June 2027.
4. Prepare the journal entries for the depreciation on 30^th June 2027.
5. How would machinery appear on the balance sheet as of 2027.