Question

On the 2 January 2016, Nivea Ltd purchased, by exchanging $267,000 cash and a $160,000, 12%, 18 month finance company loan, assets with the following independently determined appraised values:

		Appraised value
Building		$320,000
Land		80,000
Machinery and equipment		100,000
		$500,000

The estimated useful life of the building is 30 years and its residual value is $18,000. The $100,000 machinery and equipment amount consists of three machines independently valued at $29,000 each and some office equipment valued at $13,000. The estimated useful lives and residual values for these assets are:

		Useful life		Residual value
Machine 1		6 years		$3,600
Machine 2		9 years		3,600
Machine 3		4 years		4,800
Office equipment		5 years		400

Nivea Ltd uses the straight-line depreciation method. Ignore GST

Prepare journal entries (in general journal form) to record the following.

a) The purchase of the assets.

b) The accrual of interest expense on the loan on 31 December 2018.

C)  Depreciation expense for the year 2018.

D) The payment of the loan on 2 July 2019.

Answer 1

Particulars	Debit Amount	Credit Amount
Building A/C Dr.	273280
Land A/C Dr.	68320
Machinery & Equipment A/C Dr.	85400
To Cash		267000
To 12% Loan		160000
Interest A/c Dr.	19200
To 12% Loan		19200
Profit and Loss A/c Dr.	19200
To Interest A/c		19200
Depreciation A/c Dr.	21,521
To Building A/c		8,509
To Machinery 1 A/c		3,528
To Machinery 2 A/c		2,352
To Machinery 3 A/c		4,992
To Office Equipment		2,140
12 % Loan A/c Dr.	179200
Interest A/c Dr.	9600
To Cash		188800

Working

Particulars	Appraised value		Residual Value	Depreciation
Building	320000	273280	18000	8,509
Land	80000	68320
Machinery and Equipment	100000	85400
	500000	427000

Particulars	Appraised value		Year	Residual Value	Depreciation
Machinery 1	29000	24766	6	3600	3,528
Machinery 2	29000	24766	9	3600	2,352
Machinery 3	29000	24766	4	4800	4,992
Office Equipment	13000	11102	5	400	2,140
	100000	85400