On 1 January 2020, Jeffries Ltd purchased two identical new machines at a total cost of ($700)

Question:

On 1 January 2020, Jeffries Ltd purchased two identical new machines at a total cost of $$700$ 000. It was estimated that the machines would have a useful life of 10 years and a residual value of $$50$ 000 each. Jeffries Ltd uses the straight-line method of depreciation for all of its machines. The company’s end of reporting period is 31 December.

Required

(a) Record the purchase of the machines on 1 January 2020.

(b) Record the depreciation expense on the machines for 2025.

(c) Assume that early in 2026 the company revalued the machines upwards by $$80$ 000 each and assessed that the machines would last 6 more years instead of 4 but that the residual value would be $$40$ 000 each. Record all journal entries for the machines in 2026.

(d) Make the necessary entries to record the sale of one of the machines on 31 December 2026. The machine was sold for $$200$ 000. (Assume that the two machines had the same carrying amount, which equalled their fair values at this date.)

(e) How much depreciation expense would be recorded on the second machine during 2025 if it were still being used and if its residual value were still $$50$ 000? Why?

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