Question
You have just received the following e-mail from Ben, a friend of yours who works at Building Together Pty (Ltd), a construction company based in
You have just received the following e-mail from Ben, a friend of yours who works at Building Together Pty (Ltd), a construction company based in Woodstock. You are required to answer questions asked by Ben in the mail. Hi Tshego. The construction manager that I report to has asked for feedback on a number of issues relating to the treatment of PPE for the year ended 31 July 2013. I really need your help as I am a little uncertain where to start with answering her questions. So here goes......
1. On 1 August 2012, Machine A was delivered to the premises of Building Together Pty (Ltd). On this date the machine was recognised at an amount of R1 800 000. On 31 July 2013, the business paid the supplier R2 070 000. The payment period was longer than normal credit terms. Please explain why the business recognised Machine A at a different amount to the amount paid to the supplier on 31 July 2013
2. Building Together Pty (Ltd) ordered Machine B from a supplier in Gauteng on 2 July 2013. The purchase price of Machine B amounted to R765 000. The contract indicated that the machine would be sent by truck, FOB shipping point, on 28 July 2013 and would be paid for in full on the date of delivery. The machine is expected to be delivered to our business premises on 21 August 2013. The bookkeeper has already recognised the machine and the amount of R765 000 is already sitting in the PPE: Machinery account. How can this be? It is not physically on the business premises AND it has not been paid for! Please provide the general journal entry/ies that would be processed on the dates underlined. If no journal entry is required, please provide a reason for this.
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