Specialist Printers and Bookbinders Pty Ltd commenced business on 1 July 2022. On 5 July 2022 it spent $150 000 on industrial printing and binding machinery, payable in two equal instalments on 1 August and 1 November 2022. They incurred $4 500 in transport costs to deliver the machinery to the business premises and a further $5 000 in electrical wiring and installation before the machinery could be used for production. These expenses were paid in cash. The supplier informed management the machinery has a productive capacity of 600 000 hours. It is estimated the residual value would be $10 000 in scrap metal at the end of the machinery's useful life. On 30 August 2022, the business purchased a second-hand truck for $35 000 for deliveries. Stamp duty amounted to $1 050. Four new tyres were fitted at a cost of $1 200 to meet roadworthy conditions and a signwriter was paid to wrap the business logo across the truck body at a cost of $850. The truck was expected to have a useful life of 5 years and a residual value of $5 000.
Specialist Printers and Bookbinders Pty Ltd commenced business on 1 July 2022. On 5 July 2022 it spent $150 000 on industrial printing and binding machinery, payable in two equal instalments on 1 August and 1 November 2022. They incurred $4 500 in transport costs to deliver the machinery to the business premises and a further $5 000 in electrical wiring and installation before the machinery could be used for production. These expenses were paid in cash. The supplier informed management the machinery has a productive capacity of 600 000 hours. It is estimated the residual value would be $10 000 in scrap metal at the end of the machinery's useful life. On 30 August 2022, the business purchased a second-hand truck for $35 000 for deliveries. Stamp duty amounted to $1 050. Four new tyres were fitted at a cost of $1 200 to meet roadworthy conditions and a signwriter was paid to wrap the business logo across the truck body at a cost of $850. The truck was expected to have a useful life of 5 years and a residual value of $5 000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Specialist Printers and Bookbinders Pty Ltd commenced business on 1 July 2022. On 5 July
2022 it spent $150 000 on industrial printing and binding machinery, payable in two equal
instalments on 1 August and 1 November 2022. They incurred $4 500 in transport costs to
deliver the machinery to the business premises and a further $5 000 in electrical wiring and
installation before the machinery could be used for production. These expenses were paid in
cash. The supplier informed management the machinery has a productive capacity of 600
000 hours. It is estimated the residual value would be $10 000 in scrap metal at the end of
the machinery's useful life.
On 30 August 2022, the business purchased a second-hand truck for $35 000 for deliveries.
Stamp duty amounted to $1 050. Four new tyres were fitted at a cost of $1 200 to meet
roadworthy conditions and a signwriter was paid to wrap the business logo across the truck
body at a cost of $850. The truck was expected to have a useful life of 5 years and a residual
value of $5 000.
The company has adopted the units of production method of depreciation for the printing and
binding machinery and diminishing balance method at 33% for the truck. The end of its
reporting period is 30 June.
Required
(a) The Chairman of the Board of Directory suggested the advertising cost should be treated
as a capital cost. Discuss how the advertising cost should be treated.
(b) Assume management decides to treat the advertising cost as an expense, prepare general
journal entries to record the transactions and to record depreciation adjustments
necessary for the year ended 30 June 2023 if production totalled 74000 hours. Show
narrations.
(c) On 30 June 2024 the truck was sold for $16,000. Prepare the general journal entry to
record the sale.
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