The company recently acquired a new underground mining drill for their mine site located in North Queensland.
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Question:
The company recently acquired a new underground mining drill for their mine site located in North Queensland. The new drill was delivered on 15 May 2021.
Th purchase price of the new drill was $1 055 500. Other costs associated with the acquisition of the new drill were:
- Costs of testing the new drill, incurred prior to the drill being ready for use $27 500
- Allocation of general overhead costs $7 500
- Transport Costs $13 750
- Modification costs incurred prior to the drill being ready for use $3 500
- Five-year maintenance contract $4 500 for the period 15 May 2021 to 15 May 2026.
The testing and modification costs remain outstanding at 31 May 2021.
The purchase consideration consisted of:
- Loan of $725 000 with Bendigo Bank
- The exchange of old mining machine (Cost $750 900, carrying value at 15 May 2021 is $125 750, Fair Value is $100 250)
- The issue of 5 000 shares. The market price of the shares at the time of issue was $5.00 per share
- The balance (excluding testing and modification costs) was paid in cash.
Required:
- Advise the appropriate accounting policy choice the company should adopt in relation to the measurement of the new drill ; and
- Prepare the journal entry required to record the acquisition of the new mining drill.
Related Book For
Introduction to Accounting An Integrated Approach
ISBN: 978-0078136603
6th edition
Authors: Penne Ainsworth, Dan Deines
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