Group Assignment

The current reporting date of AC Entity, a registered VAT vendor, is 31 December 2017. On 1

January 2017, the entity’s accounting records reflected the following balances, amongst others:

DR (Rand) CR (Rand)

Earth moving machinery at cost price 2 850 000

Accumulated depreciation – earth moving machinery 1 371 600

Trucks at cost price 1 050 000

Accumulated depreciation – trucks 714 750

Furniture and equipment at cost price 464 000

Accumulated depreciation – furniture and equipment 178 640

Earth moving machinery

The following information was obtained from the asset register on 1 January 2017:

Earth moving
Machinery Cost price Residual value Useful life Accumulated Dep
31 Dec 20.6 (excluding VAT) 31 Dec 2016

Machine A 1 350 000 270 000 2 000 working hours 291 600
Machine B 1 500 000 300 000 2 000 working hours 1 080 000
2 850 000 1 371 600

No trucks were purchased or sold during the year.

The cost of trucks is allocated to the depreciation expense over the estimated useful life of the trucks
(5 years) by using the diminishing balance method. The annual depreciation rate is 37.4%.

At the end of the fifth year the rate of 37.4% will produce the following residual values: (Truck A
R49989 and Truck B R50 950).

Furniture and equipment

No furniture or equipment was purchased or sold during the year.

The cost of furniture and equipment is allocated to the depreciation expense over the estimated useful
life of the equipment (10 years) by using the straight-line method. No residual value is accounted for.

VAT use 15%

Required:

a) Provide journal entries to recognise the depreciation expense for 2017 in the records (general

journal) of AC Entity.

b) Provide the necessary journal entries to derecognise machine B on 1 July 2017 and to recognise
machine C in the records (general journal) of AC Entity.

c) Present and disclose the relevant balances in the appropriate financial statements of AC Entity for
the reporting period ended 31 December 2017.

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