QUESTION THREE (PART A)

Aussie Furniture Removals Limited provides furniture removal services in Australia. The following transactions relate to the purchase of a new delivery truck. Aussie Furniture Removals Limited is registered for GST and the GST rate is 10%.

1 July 2019

On 1 July 2019, a new delivery truck was purchased. The delivery truck had a recommended retail price of $165,000 (excluding GST), but after careful negotiation, it was purchased for $158,000 (excluding GST). The company also paid stamp duty of $5,000 (GST exempt) and $4,000 (excluding GST) to paint the companys logo on the delivery truck. The delivery truck was purchased on credit, but the painting and stamp duty were all paid in cash. The delivery truck is depreciated using the straight-line depreciation method and company management estimates the delivery truck to have a useful life of 5 years with a residual value of $17,000.

REQUIRED:

1. Prepare the journal entry to record the purchase of the delivery truck on 1 July 2019.
2. Prepare the journal entry to record the depreciation for the year ended 30 June 2020.

(3 + 2 = 5 marks)

PART B

Timber Merchants Limited supplies fencing materials and landscaping products in Australia. The following transactions relate to a fencing machine that was purchased by the company on 1 July 2017. Timber Merchants Limited is registered for GST and the GST rate is 10%.

1 July 2017

On 1 July 2017, a new fencing machine was purchased for $88,000 (including GST). The fencing machine is depreciated using the straight-line depreciation method and the fencing machine has an estimated useful life of 4 years with a residual value of $4,000.

1 July 2018 1 July 2020

On 1 July 2018, a special digging tool was installed to the fencing machine at a cost of $9,900 (including GST) to improve its productivity. With the installation of the digging tool, the company estimates that the residual value of the fencing machine at the end of its useful life will be $7,000, with no change to its estimated useful life. The fencing machine was sold for $27,500 (including GST).

REQUIRED:

c) Prepare the journal entries to record the installation of the digging tool on 1 July 2018.

d) Prepare the journal entry to record the sale of the fencing machine on 1 July 2020.

(3 + 3 = 6 marks)