(a)Calculate the acquisition cost of the Mixture Machine that will be used as the base for future depreciation charge. (b)Provide the journal entries that would appear in Sunflower Ltd’s books to account for the acquisition of the Mixture Machine (c) Will the maintenance cost be included in the acquisition cost of the machine? Justify your answer.
Sunflower Ltd acquires a Mixture Machine from Lilly Ltd for the following consideration:
1) Cash
$60 000
2) Land
In the books of Sunflower Ltd the land is recorded at its cost of $300 000. It has a fair value of $280 000 due to toxic substance being discovered in the land.
3) Equipment:
In the books of Sunflower Ltd the equipment is recorded at a cost of $150000. The equipment has an
4) Settlement
of liability
Sunflower Ltd also settles a liability of Lilly Ltd’s bank loan of $90 000 as part of the Mixture Machine acquisition.
5) Other costs
Sunflower Ltd also spend $15000 as the installation cost. Insurance costs during transportation was $7500. Freight cost for the machine was $2100. During first year of operation, the company paid $3000 as the maintenance cost for the machine.
REQUIRED
(a)Calculate the acquisition cost of the Mixture Machine that will be used as the base for future depreciation charge.
(b)Provide the
(c) Will the maintenance cost be included in the acquisition cost of the machine? Justify your answer.
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