Question

Entity A is a local construction company, which provides construction services to different types of customers. On 16 December 2017, Entity A ordered a concrete plant from Entity B. The listed price of the plant is $650,000 for general customers. However, Entity B offers a 10% trade discount to Entity A because it is one of its loyal customers. The plant was delivered to Entity A on 1 January 2018. According to the contract, Entity B provides a 2-month credit period to Entity A. Finally, Entity A fully settled the outstanding amount on 1 February 2018.

Installation and testing services are required to make the plant ready for use. On 1 January 2018, Entity C, the installation and testing service provider completed the concrete plant installation and testing services and certified the plant was really for use by Entity A. The cost of installation and testing services are $5,000 and it was settled with Entity C by cheque on 1 January 2018. At the inception stage, Entity A expected the useful life of the concrete plant is 5 years.

According to the local environmental protection regulation, Entity A is required to remove the concrete plant at the end of the reporting period in the Year 2022. The removal cost of $5,100 and the plant residual value of $4,013 was estimated at the inception of the contract respectively.

Finally, on 31 December 2022, the removal cost incurred was the same as the estimated amount and it will be paid in the first week of the Year 2023. However, the residual of the concrete plant can be sold by $1,900 only. A cheque was received on the same date.

Entity A always applies to discount with a rate of 8.05%.

REQUIRED:

According to relevant accounting standards, prepare journal entries to record the transactions of Entity A on 16 December 2017, 31 December 2017, 1 January 2018, 1 February 2018, 31 December 2018, 1 January 2020 and 31 December 2020, 1 January 2022 and 31 December 2022.

ACCOUNT NAMES FOR INPUT:

| PPE | Bank | Inventory | Revenue | Cost of sales | Payable | Receivable |

| Restoration liability | Interest expense | Interest revenue | Depreciation | Accum. depreciation |

| Loss on disposal | Gain on disposal | Share capital | Retained earnings | No entry |

ANSWERS:

Journal Entries:

Date	Account Name	Debit ($)	Credit ($)	Hints For Items If Necessary
16-Dec-17
31-Dec-17
1-Jan-18
				Purchase price.   Judge Dr/Cr side.
				Directly attributable cost. Judge Dr/Cr side.
				Dismantling cost. Judge Dr/Cr side.
1-Feb-18
31-Dec-18				An interest created due to the dismantling cost.
31-Dec-18
1-Jan-20
31-Dec-20				An interest created due to the dismantling cost.
31- Dec-20
1-Jan-22
31-Dec-22				An interest created due to the dismantling cost.
31-Dec-22
31-Dec-22				The settlement of dismantling cost.
31-Dec-22				The disposal of the concrete plant.
				The gain or loss on disposal.  Judge Dr/Cr side.

Answer 1

Journal Entries:

Date	Account Name	Debit ($)	Credit ($)	Hints For Items If Necessary
16-Dec-17	no entry
31-Dec-17	no entry
1-Jan-18	PPE	5,93,463
	Payable	5,90,000		Purchase price.   Judge Dr/Cr side.
	Restoration Liability	3,463		Directly attributable cost. Judge Dr/Cr side.
				Dismantling cost. Judge Dr/Cr side.
1-Feb-18	Payable	5,85,000
	bank		5,85,000
31-Dec-18	Interest Expense	279		An interest created due to the dismantling cost.
	Restoration Liability		279
31-Dec-18	Depreciation	1,17,890
	Accumulated Depreciation		1,17,890
1-Jan-20	No entry
31-Dec-20	Interest Expense	325		An interest created due to the dismantling cost.
	Restoration Liability		325
31- Dec-20	Depreciation	1,17,890
	Accumulated Depreciation		1,17,890
1-Jan-22	no Entry
31-Dec-22	Interest Expense	380		An interest created due to the dismantling cost.
	Restoration Liability		380
31-Dec-22	Depreciation	1,17,890
	Accumulated Depreciation		1,17,890
31-Dec-22	Restoration Liabilty	5,100		The settlement of dismantling cost.
	Bank		5,100
31-Dec-22	Revenue	1,900		The disposal of the concrete plant.
	Loss on disposal	2,113
	PPE		4,013
				The gain or loss on disposal.  Judge Dr/Cr side.