Question 5: Asset Register and Disposal of Asset

As part of her aim to grow the business Jane has decided to expand her market and started producing and wholesaling her own range of candles. To do this she has had to purchase various pieces of equipment, one of which is a Packaging machine. The transactions for this piece of equipment are shown below.,

From the information you are required to:

• Prepare a register of property, plant and equipment from the fixed asset transactions (provided below)
• Determine method of calculating depreciation
• Maintain asset register and associated depreciation schedule
• Prepare the general journal entries to record the disposal of the equipment

2020

Jul 1 Purchase of the Packaging Machine from Comco Industries.

• Purchase price $25,000 plus GST
• Delivery $1,200 plus GST
• Installation costs $800 plus GST
• First years Insurance of Equipment $950 plus GST

The equipment Serial number PAL586349 - came with a 5-year warranty.

Invoice number CC127 for the total amount of $30,745 (incl. GST) is due on the 31^st July

Aug 31 Paid Comco Industries for an initial service and re-calibration to ensure the machine was running correctly. $550 including GST

Oct 31 Jane decided to purchase an automatic labelling component (from Comco Industries) to be fitted to the Packaging machine to speed up the overall process. (note the labelling machine is part of the packaging machine)

• Cost of Labelling machine $3,400 plus GST
• Installation $350 plus GST
• Testing $150 plus GST
• Invoice due 30 Nov 2020. Inv # CC501

2021

Mar 31 Maintenance call out to the machine to repair damage caused by incorrect use.

$715 including GST paid to Repairs on the Run.

Jun 30 Depreciation charged on equipment as per policies and procedures found on Canvas

Sept 30 Annual Service by Comco Industries $1,650 including GST

2022

Jun 30 Depreciation charged on equipment as per policies and procedures found on Canvas

Sept 30 Jane has decided to get out of the candle making operations and sold the Packaging and Labelling machine (as a single unit) for $10,450 (including GST)

Listed below are the policies and procedures that must be followed when preparing Financial Reports for Janes Design World

• Balance Day is 30 June
• The business uses the Periodic System of recording inventory
• Each year a stocktake must be done to ascertain the value of closing stock.
• General Journal entries are to be checked and verified prior to entering into the accounting system

• Depreciate Motor Vehicles at 20% p.a. using the Straight-line method
• Depreciate Machinery & Equipment at 25% p.a. using the Reducing balance method
• Depreciate Computer Equipment at 33% p.a. using the Reducing balance method
• Allowance for Doubtful Debts is to be 4% of the Accounts Receivable balance as at the end of the financial year (after all bad debts have been written off).

• The preparation of reports must adhere to the accounting standards and the layouts of a Classified Income Statement, and a Classified Balance Sheet as specified in AASB101: Presentation of Financial Statements

• The rules of double entry accounting principles must be followed.
• At balance day all accrued income and expenses must be brought to account.
• At balance day all prepaid income and expenses must be adjusted so that accounts
• are not overstated.
• Provision for employee entitlements must be brought to account at the end of the financial year in accordance with AASB119: Employee Benefits

Asset Acquisition Procedure is as follows:

• All asset purchases and disposals will be accounted for in accordance with the accounting standard AASB116: Property, Plant and Equipment.
• Jane Lent, the business owner will be responsible for the purchase of assets. At the time of receiving the goods, items which are to be tracked in the fixed asset system must be tagged with an asset label for identification purposes.
• A file is kept for each asset purchased. This file should include the Tax Invoice, warranties, loan arrangements and any other documentation regarding the purchase. When sold, sale documentation should be added to the file.
• The purchase must then be entered in the computerised fixed asset register system, entering as much detail as possible about the asset.

Depreciation

• The Straight-line calculation method will be used in depreciating Motor Vehicles, and
• The Reducing balance calculation method will be used for all other assets Asset Maintenance
• Maintenance of assets will be recorded in the fixed asset system, along with all other details related to the fixed assets, such as acquisition and disposal data, warranty information and depreciation.

Asset Disposal

• Depreciate the asset to the date of sale
• Create a Disposal of Non-Current Asset (NCA) account and a Profit/Loss on Sale of Asset account
• Transfer any amounts remaining in the applicable asset account (representing the cost of the asset sold) to a Disposal of NCA account
• Transfer any amounts remaining in the Accumulated Depreciation Account (applicable to the asset sold) to the Disposal of NCA account
• Record the proceeds from the sale of the asset
• Transfer any profit or loss on the sale of the asset to a Profit/Loss on Sale of Asset account

Part B: Knowledge questions

1. What are the 4 main requirements of AASB116? And what is its objective?
2. Refer to AASB 116 which deals with accounting for property plant and equipment and state which section(s) deal with Depreciation methods. From these sections list the three (3) acceptable methods of calculating depreciation and provide a brief explanation of each of these methods.
3. With reference to Clauses 60 and 61 of AASB 116, what does the standard say regarding the choice of depreciation method to be used?
4. Provide a brief explanation of the difference between Capital expenditure and Revenue expenditure.
5. What is the current Taxation Ruling (name and number) that lists the effective lives of depreciable assets? What is the purpose of this ruling?