On 1 December 202X Large Mart purchased equipment on credit (credit terms: 3/10, n/30) from e-Cameras Ltd to produce the fifth-generation rear-facing bike cameras. The cost of the equipment was $40,000 and it was delivered on 5th of December 202X. The cost of transport and installation was $4,500. Large Mart Ltd installed the equipment on 8th December 202X and during the installation one of the internal factory doors were damaged. Cost to repair the damaged door was $1,500. Large Mart Ltd paid e-Cameras on 9th December 202X for the new equipment as well as the transport and installation cost. Large Mart Ltd estimates that the useful life of the equipment is 5 years, and its residual value is $1,500. Large Mart Ltd depreciates equipment using the straight line depreciation method and reports annually on 30 June. On 30 June 202X Large Mart Ltd adopted the revaluation model to account for equipment. An expert valuation was obtained showing that the fair value of the equipment was $43,000 at that date. Large Mart Ltd has some fifth-generation rear-facing bike cameras on hand at 30 June 202X for sale. Costs for making these items is: Cost of purchasing raw materials $10,000. Large Mart Ltd received a trade discount of 5% on the cost of the raw materials as an incentive to place large orders of goods. Storage costs pending payment of import duties and taxes $2,000. Import duty of 1.5% on cost of raw materials Freight inward $1,250 Labour cost $25,000 and Applied factory overheads based on normal operating capacity of $8,000. In view of their specific colour Billabong Ltd is the only customer that will buy these items in July 202X. Billabong Ltd is prepared to pay a total amount of $42,000, provided Large Mart Ltd adds the Billabong Ltd logo to the cameras at a total cost to Large Mart of $3,250. The supplier of the logo offers generous credit terms to Large Mart Ltd, the purchaser, of 2/10 n/30. Large Mart Ltd takes advantage of the discount and pays the account within ten days. Large Mart Ltd will also be required to pay the freight charges and the packaging costs to get the inventory items to Billabong Ltd. The freight will cost $1,590 and the packaging costs are $550. 

REQUIRED: 

1) Calculate the cost of the equipment to produce the new products and provide the general journal entries that are necessary in the books of Large Mart Ltd to account for the purchase of the equipment and its payment. (1.75 marks) 

2) Provide all journal entries that are necessary in the books of Large Mart Ltd to account for the revaluation of the equipment at 30 June 202X. Ensure you provide a detailed outline of the required calculations. (2 marks) 

3) Using AASB102 Inventories as a guide how should this inventory be measured and recorded in the financial statements of Large Mart Ltd at the end of the financial period. Do Not raise general journal entries (1.25 marks)

Answer rating: 100% (QA)

1 Calculate the cost of the equipment and provide journal entries for the purchase The cost of the equipment to produce new products is 40000 equipmen... View the full answer