On 1st January 2018, Goliath Ltd purchased a new machine for use in its production process. The cash price of the machine was $135,750. Related expenditures included shipping costs $8,400, Insurance during shipping $1,125, installation and testing costs $975 and $675 of oil and lubricants to be used with the machinery during its first year of operation. The accountant at Goliath determined that the straight-line method of depreciation would be the most appropriate to use with this type of equipment. It was estimated that the useful life of the machine would be 6 years with a $6,750 residual value. Ignore GST. On 1st July 2020, an internal component in the engine sheared off causing the engine to seize requiring the installation of a new engine at a cost of $45,000. Removal of the old engine and installation of the new amounted to $3,750. The new engine would provide the machine with an additional 4 years of useful life. The residual value was estimated to be $3,750. On 30th June 2023, Goliath Ltd discovered that the machine was in breach of fuel emissions and was forced to sell the machine for $1,500 scrap metal. Goliath's accounting period ends on 30 June. Required: 1. Prepare the journal entry to record the purchase of the machine on 1 January 2018 through to the disposal of the machine on 30th June 2023 2. Briefly discuss the difference between the cost method and revaluation method of accounting for non-current assets
On 1st January 2018, Goliath Ltd purchased a new machine for use in its production process. The cash price of the machine was $135,750. Related expenditures included shipping costs $8,400, Insurance during shipping $1,125, installation and testing costs $975 and $675 of oil and lubricants to be used with the machinery during its first year of operation. The accountant at Goliath determined that the straight-line method of depreciation would be the most appropriate to use with this type of equipment. It was estimated that the useful life of the machine would be 6 years with a $6,750 residual value. Ignore GST. On 1st July 2020, an internal component in the engine sheared off causing the engine to seize requiring the installation of a new engine at a cost of $45,000. Removal of the old engine and installation of the new amounted to $3,750. The new engine would provide the machine with an additional 4 years of useful life. The residual value was estimated to be $3,750. On 30th June 2023, Goliath Ltd discovered that the machine was in breach of fuel emissions and was forced to sell the machine for $1,500 scrap metal. Goliath's accounting period ends on 30 June. Required: 1. Prepare the journal entry to record the purchase of the machine on 1 January 2018 through to the disposal of the machine on 30th June 2023 2. Briefly discuss the difference between the cost method and revaluation method of accounting for non-current assets
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:On 15t January 2018, Goliath Ltd purchased a new machine for use in its production process. The cash price of the machine was
$135,750. Related expenditures included shipping costs $8,400, Insurance during shipping $1,125, installation and testing costs
$975 and $675 of oil and lubricants to be used with the machinery during its first year of operation. The accountant at Goliath
determined that the straight-line method of depreciation would be the most appropriate to use with this type of equipment. It was
estimated that the useful life of the machine would be 6 years with a $6,750 residual value. Ignore GST.
On 1st July 2020, an internal component in the engine sheared off causing the engine to seize requiring the installation of a new
engine at a cost of $45,000. Removal of the old engine and installation of the new amounted to $3,750. The new engine would
provide the machine with an additional 4 years of useful life. The residual value was estimated to be $3,750.
On 30th June 2023, Goliath Ltd discovered that the machine was in breach of fuel emissions and was forced to sell the machine for
$1,500 scrap metal.
Goliath's accounting period ends on 30 June.
Required:
1. Prepare the journal entry to record the purchase of the machine on 1 January 2018 through to the disposal of the machine on
30th June 2023
2. Briefly discuss the difference between the cost method and revaluation method of accounting for non-current assets
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