Deebar Ltd has constructed an item of machinery at a cost of $220 000. Construction began...

 

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Deebar Ltd has constructed an item of machinery at a cost of $220 000. Construction began on 1 January 2022 and was completed on 30 April 2022. The machinery produces a new damage- resistant surfboard. The cost of $220 000 comprises wages of $100 000, raw materials of $75 000 and depreciation of $45 000. The depreciation relates to other plant and machinery used to make the machine. The wages are to be paid at a future date. Deebar borrowed $150 000 at a rate of interest of 7 per cent to finance the construction of the machine. The funds were received on 1 January 2022 and were repaid on 30 June 2022. As part of securing the loan, government taxes of $1500 were paid. Deebar Ltd has a reporting date of 30 June. REQUIRED (a) Provide the accounting entry for the construction of the machinery, assuming that the machinery satisfies the criteria for recognition of an asset. (b) Provide the accounting entry, assuming that in June 2022 it becomes apparent that the surfboards made by the machine appear to be unpopular with surfers and consequently will not be bought. Further, assume that a surfing historian is prepared to pay $15 000 to acquire the machine, and that this appears to be the option that provides the greatest economic benefits to Deebar Ltd. As part of the sale of the machine, Deebar is required to pay for transporting the machine to the purchaser, and the transport costs amount to $2300. (c) Provide the accounting entry, assuming that on 1 August 2022 the demand for the surfboards suddenly increases because Rick Manning, a surfing champion, won a world title event on a prototype of the surfboard. It is now expected that thousands of the board will be sold. The surfing historian had previously indicated that he no longer wished to proceed with the acquisition of the machine. Deebar Ltd has constructed an item of machinery at a cost of $220 000. Construction began on 1 January 2022 and was completed on 30 April 2022. The machinery produces a new damage- resistant surfboard. The cost of $220 000 comprises wages of $100 000, raw materials of $75 000 and depreciation of $45 000. The depreciation relates to other plant and machinery used to make the machine. The wages are to be paid at a future date. Deebar borrowed $150 000 at a rate of interest of 7 per cent to finance the construction of the machine. The funds were received on 1 January 2022 and were repaid on 30 June 2022. As part of securing the loan, government taxes of $1500 were paid. Deebar Ltd has a reporting date of 30 June. REQUIRED (a) Provide the accounting entry for the construction of the machinery, assuming that the machinery satisfies the criteria for recognition of an asset. (b) Provide the accounting entry, assuming that in June 2022 it becomes apparent that the surfboards made by the machine appear to be unpopular with surfers and consequently will not be bought. Further, assume that a surfing historian is prepared to pay $15 000 to acquire the machine, and that this appears to be the option that provides the greatest economic benefits to Deebar Ltd. As part of the sale of the machine, Deebar is required to pay for transporting the machine to the purchaser, and the transport costs amount to $2300. (c) Provide the accounting entry, assuming that on 1 August 2022 the demand for the surfboards suddenly increases because Rick Manning, a surfing champion, won a world title event on a prototype of the surfboard. It is now expected that thousands of the board will be sold. The surfing historian had previously indicated that he no longer wished to proceed with the acquisition of the machine.

Answer rating: 100% (QA)

Answer a For this expenditure to be recognised as AN quality that is for it to be capitalised it must be considered that the item has the potential that isnt deemed to be of low chance to come up with ... View the full answer