Question

Question 6

ASL Woollen Mills purchased a weaving machine on 2 July 2018 with a list price of $156,090. Additional costs associated with the purchase of the machine included freight $5,610, insurance in transit $737. An additional $2,530 was paid to repair damage caused during installation of the weaving machine.  ASL Woollen Mills also signed a 12-month maintenance agreement for $3,300 which was paid in cash.  All costs are shown as GST inclusive.

ASL paid $60,000 cash and obtaining a 5-year loan for the balance of the acquisition cost of the weaving machine.

The effective useful life of the weaving machine is expected to be 8 years with a residual value of $15.000

ASL Woollen Mills is registered for GST and has a financial year ending 30 June.

On 30 June 2020 ASL Woollen Mills replaced a major part of the weaving machine costing $15, 400 (GST inclusive). The carrying value of the part replaced was $8,250.  It is estimated that the effective life of the weaving machine will be extended by 4 years.

Required:

Prepare general journal entries to record the following (Narrations are not required):

1. Purchase of the printing machine on 2 February 2018.

2. Depreciation of the weaving machine for the year ending 30 June 2019.

3. Overhaul of the weaving machine on 30 June 2020

4. Sale of the weaving machine on 30 December 2020.

(total: 9 + 2 + 7 + 12 = 30 marks)

Answer 1

	Journal Entries	Debit	Credit
	As per IAS all expenses incurred up to asset installation are capitalised
	So Insurance in transit , repair damage , freight will include in value of asset.
1	weaving machine A/c	164967
	To Accounts payable		156090
	To freight		5610
	To Insurance in transit		737
	To repair on installation		2530
2	Accounts Payable	156090
	To Cash A/c		156090
	Freight	5610
	Insurance in transit	737
	repair on installation	2530
	To Cash A/c		8877
	Cash A/c	104967
	To loan payable A/c		104967
3	Depriciation on 31/6/2019
	value	164967
	Residual value	15000
	life	8
	Depriciation on 31/6/2019	18745.875
	Depriciation A/c	18746
	To weaving machine		18746
4	Waeving Machine	7150
	To cash Account		7150
	Carrying value	8250
	Addition	15400
	Net to be capitalised	7150
	As the part of assset is replaced then the carrying value of the same has to be write back and new value will be capitlised in value of asset. So entry would be by net value only .
5	No informatiion of sale of machinery is given but when we sell block of asset then capital gain will arises but if a single asset is sold then amount uo to carrying value has been reduced and rest amount will be shown as gain on sale of Asset .
	So entry would be:
	Cash / account receivable	sale value
	To weaving machine		Carring value
	To profit and loss		balancing figure