O’Reilly Pty Ltd purchased a motor vehicle for use in the business on 31 March this year for $42,000 plus GST. In accordance with the firm’s policies and procedures, the accountant believes the cost of the motor vehicle should be allocated equally over its expected useful life of 5 years. It is anticipated that the motor vehicle would have a residual value of $10,000 plus GST. Assuming the balance date is 30 June.

1. To be consistent with the depreciation method suggested by the accountant, would the preferred method of depreciation be straight-line depreciation, diminishing balance method or units of production method?

Straight Line depreciation

On 31 December, a finishing machine was sold.

Accumulated depreciation to 30 June was $10,000. The depreciation for 6 months ended 31 December was $3,000.

Its capital cost was $25,000 and accumulated depreciation was $13,000 at date of sale.

The machine was sold for cash to Jake Strong for $14,300 (including GST).

Balance date is 30 June.

1. Finishing machine sale

1. Record General Journal entries to account for the depreciation 6 months ended 31 December and the sale of the finishing machine and post to the relevant ledger accounts.

General Journal – O’Reilly Pty Ltd
Date	Details	Debit	Credit
30/11/23
	Transfer asset cost to Disposal Account
30/11/23
	Transfer asset accumulated depreciation to Disposal Account
30/11/23
	Sale of asset to Jake Strong
30/11/23
	Profit on disposal of asset
30/6/23
	Transfer Profit on disposal of asset to Profit and Loss account

1. Transfer the profit or loss on disposal to the Profit and Loss account on 30 June.

Note: As the accumulated depreciation has been provided at the date of sale, no further depreciation entries are required, and the Depreciation ledger account should have no entries

General Ledger Extract
Date	Details	Folio	Debit	Credit	Balance
Machinery
30/11/XX	Balance	N/A			620,000 DR
		N/A
Accumulated Depreciation
30/11/XX	Balance	N/A			280,000 CR
		N/A
Bank
30/11/XX	Balance	N/A			20,000 DR
		N/A
GST Collected
30/11/XX		N/A
		N/A
Depreciation
30/11/XX		N/A
		N/A
Disposal
30/11/XX		N/A
		N/A
		N/A
Profit on Disposal
30/11/XX		N/A
30/06/XX		N/A

Answer rating: 100% (QA)

Here are the journal entries to record the transactions 1 Depreciation for 6 months ... View the full answer