Fiber-bond Limited specializes in supplying mining material to other companies. As at 31 December 2016 (reporting date) the following details are available to you:

Machine: - The machine was purchased for R298 000 in cash on 1 February 2016 but needed to be installed before it could be used.

- The installation cost of R10 000 was also paid for in cash. The asset was in a condition ready for use in the manner intended by management on 1 May 2016. - It was not until 1 June 2016 that it was brought into use since the directors had an old machine that they wished to use until its pistons gave up completely. - It was not until 1 June 2016 that it was brought into use since the directors had an old

machine that they wished to use until its pistons gave up completely.  It has an estimated useful life of 3 years and a residual value of R44 000. Plant:  Plant was purchased on 1 January 2014 at a cost of R720 000.

- The plant needed to be tested to ensure that the goods it produces were safe to use before it could be put into production: the cost of testing the plant was R40 500. The goods were sold to staff for R4 500.

It is estimated to have a useful life (an acquisition) of 5 years and its residual value is

R36 000. At year end the accountant ascertained that similar items of the plant were 5 years old and were correctly selling for R63 000 but his projections (using present values) suggest

that he would be able to sell this plant for R50 000 at the end of its useful life. - The accountant believes that the residual value of R36 000 should be changed but is not

sure whether to use R63 000 or R50 000 as the new residual value. The company uses the reallocation method to account for changes in estimates.

Required:

Prepare all the journal entries to account for the above for the year ended 31 December 2016.

Note: In addition to journal entries, marks will also be awarded for workings/ calculations.

 

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The scenarios you presented deal with two fixed assets a machine and a plant I will break down each one into individual components and provide journal ... View the full answer