QUESTION 6 11 MARKS Nala Ltd owns and operates a beef cattle business. On January 1, 2010 Nala Ltd purchased a new farm truck for $65,000 cash. Nala Ltd's management expects that the truck will be sold after 15 years with a $5,000 residual value. On December 31, 2016 the engine seizes up as a result of an oil leakage from the sump after an employee hit a rock in the road. As the engine is out of warranty the engine is scrapped and is replaced by a new one on January 1, 2017. It cost $10,000 and is expected to last the remaining life of the truck when it will be sold. However, due to some changed business circumstances Nala Ltd sells the truck for $35,000 on 30th September 2017. (You may round calculations to the nearest dollar.) (a) Explain how the truck satisfies the definition of Property, Plant and Equipment. Heading 1 2 marks (b) Nala Ltd is using a straight line method for the depreciation of the truck. AASB116 requires an entity to use the method that reflects the usage of the asset. Is the straight line method the most appropriate for the farm truck? Discuss. 2 marks QUESTION 6: (Continued) (c) Record the relevant journal entries for January 1 and September 30, 2017. Narrations not required. Nala Ltd - General Journal Date Details DR CR 3 marks (d) On Narla Ltd's beef cattle farm, the firm has 1,000 head of beef cattle with an average market value of $1,500 per head (known as Group A). In addition, there are 200 cattle which are in calf" and due to give birth in November/December 2017 (known as Group B). The market value of the cattle in calf' is an average of $2,000 per head (assume no twin births.) After birth, the mothers will be valued at $1,500 and the calves at $650 each. One hundred of the calves (known as Group C) will be sold at the nearby cattle market next February and the other one hundred calves (known as Group D) will be retained for "fattening up over the next 4-5 years before they to sell the calves include: transport and other costs amounting to $ Heading 1 -13 (i) State the classification of each of the groups of cattle on the 31st December 2017 Statement of Financial Position. 2 marks (i) Explain the basis of the valuation of the cattle in Group C. 2 marks (Total for Question Six: 2+2+3+4 = 11 marks) QUESTION 6 11 MARKS Nala Ltd owns and operates a beef cattle business. On January 1, 2010 Nala Ltd purchased a new farm truck for $65,000 cash. Nala Ltd's management expects that the truck will be sold after 15 years with a $5,000 residual value. On December 31, 2016 the engine seizes up as a result of an oil leakage from the sump after an employee hit a rock in the road. As the engine is out of warranty the engine is scrapped and is replaced by a new one on January 1, 2017. It cost $10,000 and is expected to last the remaining life of the truck when it will be sold. However, due to some changed business circumstances Nala Ltd sells the truck for $35,000 on 30th September 2017. (You may round calculations to the nearest dollar.) (a) Explain how the truck satisfies the definition of Property, Plant and Equipment. Heading 1 2 marks (b) Nala Ltd is using a straight line method for the depreciation of the truck. AASB116 requires an entity to use the method that reflects the usage of the asset. Is the straight line method the most appropriate for the farm truck? Discuss. 2 marks QUESTION 6: (Continued) (c) Record the relevant journal entries for January 1 and September 30, 2017. Narrations not required. Nala Ltd - General Journal Date Details DR CR 3 marks (d) On Narla Ltd's beef cattle farm, the firm has 1,000 head of beef cattle with an average market value of $1,500 per head (known as Group A). In addition, there are 200 cattle which are in calf" and due to give birth in November/December 2017 (known as Group B). The market value of the cattle in calf' is an average of $2,000 per head (assume no twin births.) After birth, the mothers will be valued at $1,500 and the calves at $650 each. One hundred of the calves (known as Group C) will be sold at the nearby cattle market next February and the other one hundred calves (known as Group D) will be retained for "fattening up over the next 4-5 years before they to sell the calves include: transport and other costs amounting to $ Heading 1 -13 (i) State the classification of each of the groups of cattle on the 31st December 2017 Statement of Financial Position. 2 marks (i) Explain the basis of the valuation of the cattle in Group C. 2 marks (Total for Question Six: 2+2+3+4 = 11 marks)