Question 3

(a) From the list given below, you are required to classify 'Capital Expenditure' and 'Revenue Expenditure.

(i) Photocopy papers bought for administrative purposes

(ii) Chinese New Bonus given to employees

(iii) Purchase of Machinery for production in factory

(iv) Cost of renovation for office and factory premises

(v) Cost of installation expenses relating to machinery

(vi) Salaries and wages paid to factory operatives[6 marks]

(b) Belle Limited bought a plant and equipment costing $290,000 on 1 January 2019. The estimated useful life of the plant and equipment is 5 years. The scrap value at the end of the useful life is $20,000. The total capacity of the plant and equipment is 180,000 units of production. The units of production for the first three years are given as follows:

Year Units of production

1 30,000

2 48,000

Required:

(i) Calculate the annual depreciation using method the straight line Method[4 marks]

(ii) Calculate the annual depreciation for the first two (2) years using the Units of Use method (Output Method)[5 marks]

(c) Belle operates a coffee shop, Belle Caf, with a financial year ending 30 June.On 1 July 2019, Belle purchased a new coffee machine. The machine had a recommended retail price of $250,000. The caf appliances and furnishings cost $400,000. The delivery of the coffee machine cost $1,500, installation was $11,900 and a new cash registered was purchased at $6,000. All payments were paid in cash.

Required:

Calculate the cost to be capitalised.[6 marks]

(d) A company bought an equipment for $65,000 but the accounts clerk recorded the transaction into repairs to machine account. The corresponding entry was recorded correctly.

Required:Explain the effects of the error on the elements of financial statements.[4 marks]

[Total 25 marks]