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Max Ltd acquires an item of machinery on 1 July 2016 for a total acquisition cost...

Max Ltd acquires an item of machinery on 1 July 2016 for a total acquisition cost of $61,000. The life of the asset is assessed as being six (6) years, after which time Max Ltd expects to be able to dispose of the asset for $6,000. It is expected that the benefits will be generated in a pattern that is best reflected by the sum—of—digits depreciation approach. On 1 July 2019, owing to unforeseen circumstances, the machinery is exchanged for a motor vehicle. Note the motor vehicle is two years old, originally cost $17,000 and has a fair value of $11,000.

Required: Provide the necessary journal entries for the disposal of the machinery and the acquisition of the motor vehicle on 1 July 2019.

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ANSWER:::

Cost of machinery = $ 61,000

Salvage value = $ 6000

Useful life = 6 years

Year                                                   Depreciation

31st July 2017                                  61000-6000*6/21= 15714

31st July 2018                                 61000-6000*5/21= 13095

31st July 2019                                 61000-6000*4/21= 10476

$39285

                                                                                              

Book value on 31st July 2019   = 61000- 39285 = 21715

Journal Entry:

Date                      Accounts Title                             Debit                credit

31st July 2019     Motor vehicle                            $11,000

                            Accumulated depreciation $ 39285

                             Loss on disposal                       10,715

                             Cost of machine $ 61,000

To record the machine is exchanged for loss with motor vehicle

ekkarill92 answered 2 years ago
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