Rahara Ltd purchased a piece of equipment for £600,000 on the Ist January 2021. The equipment is expected to have an economic life of 5 years and will have no residual value. Depreciation is calculated on a straight-line basis over the life of the asset. The company received a government of £200,000 towards the purchase of the equipment. The financial year end of the company is December 31st each year. Required: Show the relevant extracts from the financial statements for the years ended 31/12/21 & 31/12/22 under each of the two allowable methods of presentation.

Rahara Ltd purchased a piece of equipment for £600,000 on the Ist January 2021. The equipment is expected to have an economic life of 5 years and will have no residual value. Depreciation is calculated on a straight-line basis over the life of the asset. The company received a government of £200,000 towards the purchase of the equipment. The financial year end of the company is December 31st each year. Required: Show the relevant extracts from the financial statements for the years ended 31/12/21 & 31/12/22 under each of the two allowable methods of presentation.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: A corporation bought a machine for RP 8,000 with a commercial useful life of 4 years and a fiscal…

Q: A company which uses the revaluation model for its PPE bought a building on 1 January 2014 for £10m.…

A: The question asked to find the correct answer from the available options. Other comprehensive…

Q: The statement of financial position of WXY Ltd as of 31 December 2021 is presented below: ASSETS…

A: (a) Income statement: You can see the company's income and expenditures on an income statement,…

Q: Bold Ltd purchased machinery on 1 January 2021 at a cast of R1 200 000. A major inspection has to be…

A: Here's the breakdown:Original Cost: R1,200,000 (given)Depreciation Method: Straight-line…

Q: On 1 January 2020 a company purchased some plant. The invoice showed Cost of plant £61,000…

A: Capitalised cost of the asset means all costs related to purchase of asset along with all costs…

Q: Your firm bought a machine for £5,000 on 1 January 20X1, when it had a useful life of four years and…

A: Depreciation is the allocation of cost of asset over the useful life of the asset. Under straight…

Q: A company which uses the revaluation model for its PPE bought a building on 1 January 2014 for…

A: Revaluation loss is the difference between the carrying amount of the asset and the revalued amount…

Q: Prepare the December 31 entry for Pronghorn Corporation to record amortization of intangibles. The…

A: Amortization is the expense which is written in the imcome statement as the decrease in the value of…

Q: On 1 January 2021, Tymba plc has a building with a carrying value of £500,000 which was purchased on…

A: As per IAS 16, Property, Plant and Equipment Amount that can be transferred from revaluation…

Q: Prepare the journal entry to account for the change in accounting estimate.

A: Depreciation is estimated value calculated on the basis of depreciation method and estimation of…

Q: TAKULAH Traders Ltd purchased a machine for $650 000 and there was an accumulated depreciation…

A: As per AASB 116, a revaluation gain on any asset should be recognized in other comprehensive income…

Q: On 1 May 2021, Topdog Ltd. buys and puts into service an item of specialised equipment to increase…

A: Any omitted transaction that is material in nature needs to be recorded in the accounts of the…

Q: On January 2, 2022, Lauren Corporation purchased factory equipment for $850,000. In addition, it…

A: Depreciation is considered as an expense charge on the value of the Asset. It can be calculated by…

Q: Z Limited purchases an asset for $50,000 from CashCrow Company on 1 January 2015 for cash. Z Ltd…

A: Total cost of the machine = Purchase price + Delivery and installation costs = $50,000 +$60000 =…

Question

Rahara Ltd purchased a piece of equipment for £600,000 on the 1st January 2021. The
equipment is expected to have an economic life of 5 years and will have no residual value.
Depreciation is calculated on a straight-line basis over the life of the asset. The company
received a government of £200,000 towards the purchase of the equipment. The financial year
end of the company is December 31st each year.
Required:
Show the relevant extracts from the financial statements for the years ended 31/12/21 &
31/12/22 under each of the two allowable methods of presentation.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1Basic Information

VIEW

Step 2 Solution

VIEW

Step 3 Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Sheffield Corp., which has a calendar year accounting period, purchased a new machine for $90000 on April 1, 2016. At that time Sheffield expected to use the machine for nine years and then sell it for $9000. The machine was sold for $49100 on Sept. 30, 2021. Assuming straight-line depreciation, no depreciation in the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the time of sale would be O $0. O $6100. O $4100. O $9000.
On 1 April 2016, Gidimadjor Ltd received a government grant of GH¢8 million towards the purchase of new plant with a gross cost of GH¢64 million. The plant has an estimated life of 10 years and is depreciated on a straight-line basis.One of the terms of the grant is that the sale of the plant before 31 March 2020 would trigger a repayment on a sliding scale as follows:Sale in the year ended: Amount of repayment31 March 2017 100%31 March 2018 75%31 March 2019 50%31 March 2020 25%Accordingly, the directors propose to credit to the statement of profit or loss GH¢2 million (GH¢8 million x 25%) being the amount of the grant they believe has been earned in the year to 31 March 2017.Gidimadjor Ltd accounts for government grants as a separate item of deferred credit in its statement of financial position. Gidimadjor Ltd has no intention of selling the plant before the end of its economic life.Required:Advise, and quantify where possible, how the above items should be treated in Gidimadjor…
At the beginning of the year, Big Time Tires acquired a patent for $730,000, and a trademark for $260,000. Big Time Tire's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a five-year service life. What is the total amount of amortization expense that would appear in Big Time Tire's income statement for the first year related to these items? Amortization expense
Oriole plc purchased a computer for £9.440 on January 1, 2021. Straight-line depreciation is used, based on a 5-year life and a £1,180 residual value. In 2023, the estimates are revised. Oriole now feels the computer will be used until December 31, 2024, when it can be sold for £590. Compute the 2023 depreciation.
Whispering Company owns equipment that cost $100,000 when purchased on January 1, 2019. It has been depreciated using the straight-line method based on an estimated salvage value of $10,000 and an estimated useful life of 5 years. Depreciation expense adjustments are recognized annually. Instructions: Prepare Whispering Company's journal entries to record the sale of the equipment in these four independent situations. Update depreciation on assets disposed of at time of sale. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) (a) (b) (c) (d) (e) (f) (a) Sold for $59,000 on January 1, 2022. Sold for $59,000 on April 1, 2022. SR. Account Titles and Explanation (b) Sold for $21,000 on January 1, 2022. Sold for $21,000 on September 1, 2022. Repeat (a), assuming Whispering uses double-declining…
On July 1, 2022, Piscor Corporation purchased factory equipment for P450,000. Residual value was estimated to be P12,000. The equipment will be depreciated over ten years using the double-declining balance method. Counting the year of acquisition as one-half year, Piscor should report depreciation expense for 2023 on this equipment of:A. 90,000 B. 81,000 C. 78,840 D. 72,000
Robotix Company purchases a patent for $21,000 on January 1. The patent is good for 18 years, after which anyone can use the patent technology. However, Robotix plans to sell products using that patent technology for only 5 years. Prepare the intangible asset section of the year end balance sheet after amortization expense for the year is recorded.
On January 2, 2018, Lem Corp. bought machinery under a contract that required a down payment of P10,000 plus twenty-four monthly payments of P5,000 each, for total payments of P130,000. The cash equivalent price of the machinery was P110,000. The machinery has an estimated; useful life of ten years and estimated residual value of P5,000. Lem uses straight-line depreciation. In its 2018 income statement, what amount should Lem report as depreciation for this machinery? Group of answer choices P13,000 P11,000 P12,500 P10,500
On 1 October 2019, company X (with a year-end as at 30th Sept) acquired an item of machinery for£10,720. During the year, the machinery had got damaged and was underperforming, although it was stillbeing used. By 30 September 2020, following the damage, the item of machinery had an estimatedremaining useful life of two years, a value in use of £6,300 and a fair value of £6,400. The costs to sell theitem of machinery amounted to £500. Company X depreciates machinery on a reducing balance basis ata rate of 20% per annum.Compute the impairment loss in relation to the aforementioned item of machinery to be shown in companyX’s income statement for the year ending 30th September 2020.
On 1 July 20X7 Brown Ltd bought a machine for GHS 48,000. The machine was depreciated at 25% per annum on a straight-line basis until 30 June 20X9. On 1 July 20X9, the machine was revalued to GHS 30,000. Brown Ltd considers that its remaining useful life is three years. According to IAS 16 Property, Plant and Equipment, what should be the depreciation charge for the year ended 30 June 20Y0 and the balance on the revaluation surplus as at 30 June 20Y0? (Ignore any transfer of excess depreciation.) Depreciation charge Revaluation surplus A GHS 8,000 GHS 4,000 B GHS 8,000 GHS 6,000 C GHS 10,000 GHS 6,000 D GHS 10,000 GHS 4,000
David Ltd commences operations on 1 July 2020 On the same date, it purchases a machine at a cost of $1000 000 The machine is expected to have a useful life of 4 years, with benefits being uniform throughout its life. It will have no residual value at the end of 4 years Hence, for accounting purposes the depreciation expense would be $250 000 per year For taxation purposes, the ATO allows the company to depreciate the asset over three years—that is, $200 000 per year The profit before tax of the company for each of the next four years (years ending 30 June) is $600 000, $700 000, $800 000 and $900 000 respectively The tax rate is 30 per cent. Required: 1. Calculate the taxable profit on 30 June 2021, 30 June 2022, 30 June 2023.2. Record the necessary journal entries.
Lux Inc. recently purchased some production equipment that they would take possession as of February 1, 2021. The total purchase price for the equipment is $175,000 and they expect the residual value to be $25,000. The equipment is expected to have an estimated useful life of 5 years. Lux Inc. has a fiscal year end of December 31st. Required - a. What is the production equipment's depreciation expense for the year ending December 3, 2021, if they apply: i. straight-line method? ii) declining balance method for 2021 and 2022 assuming a 20% rate? b. On January 1, 2023, the company decided to make improvements to the production equipment and believe the total its estimated life will now be a total of 8 years and the residual value be $15,000. What is the depreciation expense for the year ending December 31, 2023, assuming the company uses the straight-line method? Assume that the 2021 and 2022 depreciation expenses were recorded correctly. c. On January 1, 2025 Lux Inc. sold the…