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Advise the directors whether or not X Limited should have entered into the contract. Justify your answer.

Advise the directors whether or not X Limited should have entered into the contract. Justify your answer.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Advise the directors whether or not X Limited should have entered into the contract. Justify
your answer.

X Limited provided the following information relating to its non-current assets at 1 January 2021. Plant and Machinery $ Cost 400 000 60 000 Accumulated depreciation 160000 24 000 Net book value 240 000 36 000 The following transactions took place during the year ended 31 December 2021. 1 The building, which has a useful life of 20 years, was purchased on 1 January 2016. It was revalued to $750 000 on 1 January 2021. Installation Delivery Building $ 600 000 150 000 450 000 2 A new machine was purchased on 1 March 2021 costing $200 000. Other related costs were also incurred as follows: Pre-production testing Repair and maintenance for a 5-year contract Motor Vehicle $ Building Plant and machinery Motor vehicles A full year's depreciation $ 11000 8000 5000 30 000 54 000 3 The motor vehicle is a diesel lorry which was bought on 1 January 2019. It has an estimated useful life of 5 years with no residual value. A recent government environmental policy urged X Limited to review the value of this lorry. Further information at 31 December 2021 relating to the lorry was as follows: Estimated value in use Expected selling price, before incurring selling costs of $4000 $ 18500 21000 4 The depreciation policy of X Limited is as follows: straight-line method reducing balance method at an annual rate of 25% straight-line method is charged in the year of purchase.
Transcribed Image Text:X Limited provided the following information relating to its non-current assets at 1 January 2021. Plant and Machinery $ Cost 400 000 60 000 Accumulated depreciation 160000 24 000 Net book value 240 000 36 000 The following transactions took place during the year ended 31 December 2021. 1 The building, which has a useful life of 20 years, was purchased on 1 January 2016. It was revalued to $750 000 on 1 January 2021. Installation Delivery Building $ 600 000 150 000 450 000 2 A new machine was purchased on 1 March 2021 costing $200 000. Other related costs were also incurred as follows: Pre-production testing Repair and maintenance for a 5-year contract Motor Vehicle $ Building Plant and machinery Motor vehicles A full year's depreciation $ 11000 8000 5000 30 000 54 000 3 The motor vehicle is a diesel lorry which was bought on 1 January 2019. It has an estimated useful life of 5 years with no residual value. A recent government environmental policy urged X Limited to review the value of this lorry. Further information at 31 December 2021 relating to the lorry was as follows: Estimated value in use Expected selling price, before incurring selling costs of $4000 $ 18500 21000 4 The depreciation policy of X Limited is as follows: straight-line method reducing balance method at an annual rate of 25% straight-line method is charged in the year of purchase.
Additional information The repair and maintenance cost of $30 000 for the 5-year contract for the new machine was paid on 1 March 2021.
Transcribed Image Text:Additional information The repair and maintenance cost of $30 000 for the 5-year contract for the new machine was paid on 1 March 2021.
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