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Question 2 On 1 January 2015, Penton Engineering purchased a machine. The following information relates to the machine: List price of machine Discount given Delivery
Question 2 On 1 January 2015, Penton Engineering purchased a machine. The following information relates to the machine: List price of machine Discount given Delivery charge Special platform to place the machine Machine operator's salary per month Maintenance per month $100,000 12,000 1,000 1,500 2,000 500 7,500 Taxes The machine was estimated to have a useful life of 5 years with a residual value of $8,000. On 1 January 2017, the company spent $20,000 to completely overhaul the engine. The overhaul extended the useful life of the machine from 5 years to 8 years. The company uses the straight-line method of depreciation. The company's financial year ends on 31 December (a) Identify and compute the cost of the machine. Explain your reasoning. (10 marks) (b) Compute the depreciation expense and net book value of the machine for each of the years 2015, 2016, 2017 and 2018. (8 marks) (c) Accounting for depreciation involves judgements and estimates. Explain why this is so and discuss the impacts on the financial statements. (15 marks)
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