On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase the production capacity of its Property, Plant and Equipment. Details of the new equipment item are: Cost $314,000 Estimated residual value $14,000 Estimated useful life = 10 years (to be used equally over its life) The equipment will be purchased by issuing 110,000 shares at $1 each and borrowing the remaining amount. The loan will be repaid in a lump sum in 2025. The interest of 10% p.a. will be paid at the end of each 6 months after the purchase of the equipment. Topdog Ltd. failed to record the new equipment in the 30 June 2021 annual financial statements. Management discovered the omission in October 2021 and decided that the omission is material. Required: Prepare the journal entries in October 2021 to record the omitted information. Explain the change (including amounts) to Topdog Ltd’s net profit, total assets, total liabilities and total equity after the correction of this error.
On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase the production capacity of its Property, Plant and Equipment. Details of the new equipment item are: Cost $314,000 Estimated residual value $14,000 Estimated useful life = 10 years (to be used equally over its life) The equipment will be purchased by issuing 110,000 shares at $1 each and borrowing the remaining amount. The loan will be repaid in a lump sum in 2025. The interest of 10% p.a. will be paid at the end of each 6 months after the purchase of the equipment. Topdog Ltd. failed to record the new equipment in the 30 June 2021 annual financial statements. Management discovered the omission in October 2021 and decided that the omission is material. Required: Prepare the journal entries in October 2021 to record the omitted information. Explain the change (including amounts) to Topdog Ltd’s net profit, total assets, total liabilities and total equity after the correction of this error.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase the production capacity of its Property, Plant and Equipment.
Details of the new equipment item are:
- Cost $314,000
- Estimated residual value $14,000
- Estimated useful life = 10 years (to be used equally over its life)
- The equipment will be purchased by issuing 110,000 shares at $1 each and borrowing the remaining amount.
- The loan will be repaid in a lump sum in 2025. The interest of 10% p.a. will be paid at the end of each 6 months after the purchase of the equipment.
- Topdog Ltd. failed to record the new equipment in the 30 June 2021 annual financial statements. Management discovered the omission in October 2021 and decided that the omission is material.
Required:
- Prepare the
journal entries in October 2021 to record the omitted information. - Explain the change (including amounts) to Topdog Ltd’s net profit, total assets, total liabilities and total equity after the correction of this error.
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