Question 1

On 2 January 2019, McGrath Ltd purchased a machine for $36 000 with a useful life of 5

years and a residual value of $6000. In order to keep the machine running properly, the

company has performed regular maintenance and repairs each year since its acquisition. In

the fourth year (2022), ordinary repairs amounted to $900.

On 3 January 2023, McGrath Ltd decided to completely overhaul the machines major

operating parts at a cost of $9600, after which the machine is expected to have a useful life of

4 more years and a revised residual value of $4000. McGrath Ltd uses the straight-line

depreciation method. The carrying amount of the parts replaced was considered to be $400.

Required

Prepare general journal entries to record:

a. the purchase of the machine on 2 January 2019

(2 marks)

b. the day-to-day repairs on the machine in 2022

(2 marks)

c. the overhaul of the machine on 3 January 2023

(4 marks)

d. depreciation expense on the machine on 31 December 2023

(2 marks)