Exercise 5.

16

Lark’s Turf Farm owned the following items of property, plant and equipment as at 30 June 2019:

  Land (at cost)         $120,000

  Office building (at cost)   150,000    
  Accumulated depreciation   (23,375)   126,625
  Turf cutter (at cost)   65,000      
  Accumulated depreciation   (42,367)   22,633
  Water desalinator (at fair value)         189,000

Additional information (at 30 June 2019)

(a) The straight-line method of depreciation is used for all depreciable items of PPE. Depreciation
is charged to the nearest month and all figures are rounded to the nearest dollar.
(b) The office building was constructed on 1 April 2015. Its estimated useful life is 20 years and
it has an estimated residual value of $40,000.
(c) The turf cutter was purchased on 21 January 2016, at which date it had an estimated useful
life of 5 years and an estimated residual value of $3,200.
(d) The water desalinator was purchased and installed on 2 July 2018 at a cost of $200,000. On
30 June 2019, the plant was revalued upwards by $7,000 to its fair value on that day.
Additionally, its useful life and residual value were re-estimated to 9 years and $18,000
respectively.
The following transactions occurred during the year ended 30 June 2020:
(Note: All payments are made in cash.)
(e) On 10 August 2019, new irrigation equipment was purchased from Pond Supplies for
$37,000. On 16 August 2019, the business paid $500 to have the equipment delivered to the
turf farm. William Wagtail was contracted to install and test the new system. In the course of
installation, pipes worth $800 were damaged and subsequently replaced on 3 September.
The irrigation system was fully operational by 19 September and William Wagtail was paid
$9,600 for his services. The system has an estimated useful life of 4 years and a residual
value of $0.
(f) On 1 December 2019, the turf cutter was traded in on a new model worth $80,000. A trade-
in allowance of $19,000 was received and the balance paid in cash. The new machine’s
useful life and residual value were estimated at 6 years and $5,000 respectively.
(g) On 1 January 2020, the turf farm’s owner Terry Clifford decided to extend the office building
by adding three new offices and a meeting room. The extension work started on 2 February
and was completed by 28 March at a cost of $49,000. The extension is expected to increase
the useful life of the building by 4 years and increase its residual value by $5,000.
(h On 30 June 2020, depreciation expense for the year was recorded. The fair value of the
) water desalination plant was $165,000.

Required
Prepare general journal entries to record the transactions and events for the reporting period
ended 30 June 2020 in relation to the following assets:

(i) office building

(ii) turf cutters
(iii) water desalinator
(iv
irrigation equipment
)
Exercise 5.22

Wren Trading operates in a very competitive field. To maintain its market position, it
purchased two new machines for cash on 1 January 2018. It had previously rented its
machines. Machine A cost $43,000 and Machine B cost $108,000. Each machine was
expected to have a useful life of 10 years, and residual values were estimated at $2,200 for
Machine A and $5,400 for Machine B.

On 30 June 2019, Wren Trading adopted the revaluation model to account for the class of
machinery. The fair values of Machine A and Machine B were determined to be $35,000 and
$97,000 respectively on that date. The useful life and residual value of Machine A were
reassessed to 8 years and $1,600. The useful life and residual value of Machine B were
reassessed to 8 years and $4,300.

On 2 January 2020, extensive repairs were carried out on Machine B for $71,000 cash. Wren
Trading expected these repairs to extend Machine B's useful life by 3.5 years, and it revised
Machine B's estimated residual value to $10,200.

Owing to technological advances, Wren Trading decided to replace Machine A. It traded in

Machine A on 31 March 2020 for new Machine C, which cost $69,000. A $30,000 trade-in
was allowed for Machine A, and the balance of Machine C's cost was paid in cash. Transport
and installation costs of $1,050 were incurred in respect to Machine C. Machine C was
expected to have a useful life of 8 years and a residual value of $8,600.

Wren Trading uses the straight-line depreciation method, recording depreciation to the
nearest month and the nearest dollar. The end of its reporting period is 30 June.

On 30 June 2020, fair values were determined to be $151,000 and $70,000 for Machines B
and C respectively.

Prepare general journal entries to record the above transactions and the depreciation journal
entries required at the end of each reporting period up to 30 June 2020.